Option Activity Alert: SNDK, NTT, SNIC, DE

SNDK – SanDisk Corp. – Options on the manufacturer of data storage products are popular today after analyst upgrades sent shares of the underlying stock up as much as 6.145% to an intraday high of $45.60. An analyst at UBS upped his share price target on SanDisk to $55.00 from $50.00, while analysts at Morgan Stanley reiterated their ‘overweight’ rating on SNDK with a share price target of $49.00. Options expiring in December are the most active as of 12:55 pm in New York with shares in the name trading 5.15% higher on the day at $45.18. Notable bullish interest in out-of-the-money calls caught our eye. More than 4,200 calls changed hands at the December $46 strike, surpassing volume represented by previously existing open interest at that strike. It looks like the majority of those calls were purchased for an average premium of $1.46 per contract. Call buyers stand prepared to profit in the event that SanDisk’s shares surge 5.05% over the current price of $45.18 to surpass the average breakeven point to the upside at $47.46 by expiration day in December. Meanwhile, near-term put action was largely generated by an investor purchasing a put spread. It looks like the trader picked up roughly 2,000 puts at the December $42 strike for a premium of $0.85 a-pop, and sold about the same number of puts at the lower December $41 strike for a premium of $0.57 each. Net premium paid for the spread amounts to $0.28 per contract and positions the trader to make money if shares slip beneath the effective breakeven price of $41.72 by expiration day. Maximum available profits of $0.72 apiece pad the investor’s wallet if SNDK’s shares plunge 9.25% lower to trade below $41.00 ahead of expiration in the final month of the year.

NTT – Nippon Telegraph and Telephone Corp. – The Tokyo, Japan-based telecommunications services provider was the target of covered call selling in the first half of the trading session. NTT’s shares edged 0.35% higher in early-afternoon trading to stand at $22.94 by 12:15 pm. It looks like the investor responsible for generating all of today’s volume in NTT options purchased 316,700 shares of the underlying stock for $22.92 each, and sold 3,167 in-the-money calls at the June 2011 $22.5 strike for a premium of $1.30 per contract. The sale of the calls effectively reduces the price of getting long the stock to $21.62 a share. If the shares are called away from the investor at $22.50 apiece, he will walk away from the position having effectively gained 4.07% on the rise in NTT’s shares from $21.62 to $22.50. The burst of call activity on Nippon Telegraph today lifted the stock’s reading of implied volatility 10.7% to 20.07% by 12:20 pm.

SNIC – Sonic Solutions – The software firm popped up on our ‘hot by options volume’ market scanner this morning after options traders initiated long-term bullish stances on the stock in the May 2011 contract. Shares in Sonic Solutions jumped as much as 8.2% today to hit an intraday high of $9.87 on reports the firm is taking steps to expand its RoxioNow platform outside of the United States. SNIC’s shares are currently up 5.25% to stand at $9.60 as of 12:10 pm in New York trading. Investors itching for substantial share price appreciation ahead of May expiration employed debit call spreads. Traders picked up approximately 2,000 calls at the May 2011 $10 strike for an average premium of $1.68 apiece, and sold the same number of calls up at the May 2011 $15 strike at an average premium of $0.31 each. The average net cost of putting on the spread amounts to $1.37 per contract. Thus, bullish players are poised to profit should SNIC’s shares surge 18.4% over the current price of $9.60 to exceed the average breakeven point to the upside at $11.37 by May expiration. Maximum potential profits of $3.63 per contract are available to call-spreaders should shares in Sonic Solutions jump 56.25% to trade above $15.00 by expiration day. Sonic’s shares traded as high as $14.02 in the past 52 weeks.

DE – Deere & Co. – Trading in near-term option contracts on the world’s largest maker of farm equipment took on a bullish tone this morning after the firm said it earned $1.07 a share in the fourth quarter, versus a loss of $0.53 a share in the same period last year. Shares in Deere & Co. started out well, rising 1.3% to an intraday high of $77.36 earlier in the session, but pared gains by 11:40 am in New York to stand 0.25% lower on the day at $76.16. The morning rally may have disappeared because DE forecast weaker-than-expected full-year profits of $2.1 billion in 2011, which is less than the $2.3 billion average profit estimate from analysts. Nevertheless, options traders honed in on calls expiring before the current year concludes in order to take bullish stances on the equipment maker. Investors expecting shares in Deere & Co. to rally picked up in- and out-of-the-money call options. Bulls purchased at least 2,500 in-the-money calls at the December $75 strike for an average premium of $3.00 apiece. Call buyers at this strike are prepared to make money should Deere’s shares increase 2.4% over the current price of $76.16 to surpass the average breakeven point at $78.00 ahead of expiration day next month. Optimism spread to the higher December $80 strike where approximately 1,200 calls were scooped up at an average premium of $0.81 a-pop. Traders holding these contracts profit if DE’s shares jump 6.1%, surpass the current 52-week high of $79.52, and trade above the average breakeven price of $80.81 by December expiration. Options implied volatility on the machinery maker is down 15.8% at 25.94% following earnings.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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