Option Activity Alert: GNW, IBN, COG, BSX

GNW – Genworth Financial Corp. – Call options on the insurance company are in high demand today with shares in Genworth Financial Corp. rallying as much as 6.4% during the session to an intraday high of $14.77. Near-term bulls picked up in- and out-of-the-money calls to position for continued appreciation in the price of the underlying. GNW rallied in sympathy with MBIA after a New York appeals court threw out one of two lawsuits related to restructuring at the firm. Investors purchased approximately 4,000 now in-the-money calls at the January $14 strike for an average premium of $0.59 each. Call buyers at this strike profit if Genworth’s shares trade above the average breakeven price of $14.59 through January expiration. Optimism spread to the higher January $15 strike where some 7,500 calls were picked up for an average premium of $0.17 per contract. Higher-strike call coveters are poised to profit should shares rally 2.7% over today’s high of $14.77 to surpass the average breakeven point on the upside at $15.17 by expiration day. Genworth Financial is scheduled to report fourth-quarter earnings after the market closes on February 2, 2011. Buyers of roughly 1,500 in-the-money calls at the February $14 strike for an average premium of $0.99 each and 1,600 calls at the February $15 strike at a premium of $0.62 apiece, are well positioned to benefit from bullish movement in GNW shares should the firm post better-than-expected results next month.

IBN – ICICI Bank Ltd. – The Mumbai-based provider of financial services popped up on our scanners this morning after bearish options traders initiated debit put spreads in the June contract. Shares in ICICI Bank are currently up 1.8% to stand at $45.53 as of 11:40am in New York. It looks like one or more investors purchased roughly 5,000 puts at the June $40 strike for an average premium of $2.44 each, and sold about the same number of puts at the lower June $30 strike at an average premium of $0.44 apiece. The average net cost of buying the spread amounts to $2.00 per contract. Investors stand prepared to make money should shares in ICICI Bank plunge 16.5% from the current price of $45.53 to breach the effective breakeven point on the downside at $38.00 ahead of expiration day. Maximum potential profits of $8.00 per contract are available if shares in IBN plummet 34.1% in the next 6 months to trade below $30.00 by June expiration. On Monday IBN shares touched an intraday low of $44.52, which marked a total decline of 23.5% in shares over the past couple of months since the stock hit a 52-week high of $58.22 on November 4, 2010. It looks like put players populating ICICI Bank options see the stock falling further despite the slight rebound in the price of the underlying shares today.

COG – Cabot Oil & Gas Corp. – Trading in February contract call and put options on the independent oil and gas company this morning appears to be the work of an investor expecting shares in Cabot Oil & Gas Corp. to trade within a narrow range through expiration day next month. Cabot’s shares are currently up 2.25% to stand at $38.45 as of 12:15pm. The Houston, TX-based firm was rated new ‘hold’ with a 12-month target share price of $42.00 at Canaccord Genuity yesterday. It looks like the options strategist initiated a short straddle, selling 1,980 in-the-money calls at the February $37 strike for a premium of $2.22 each, and selling 1,980 puts at the same strike at a premium of $1.30 apiece. Gross premium pocketed on the transaction amounts to $3.52 per contract, which the investor keeps as long as Cabot’s shares settle at $37.00 at expiration. The amount of premium in the trader’s piggy bank erodes as shares move in either direction away from the strike price, and eventually turns to losses in the event that COG’s shares rally above the upper breakeven price of $40.52, or if shares slip beneath the lower breakeven point at $33.48, by the time the contracts expire in February.

BSX – Boston Scientific Corp. – An options trader expecting shares of the medical devices maker to pull back ahead of February expiration initiated a bearish ratio put spread on the stock right out of the gate this morning. Shares in Boston Scientific are up 0.95% to arrive at $7.46 just before 12:00pm. The investor may be positioning for bearish movement in the price of the underlying shares ahead of the firm’s fourth-quarter earnings report, which is scheduled for release after the closing bell on February 2, 2011. The options player picked up 2,000 in-the-money puts at the February $8.0 strike for a premium of $0.78 each, and sold 4,000 puts at the lower February $7.0 strike at a premium of $0.21 a-pop. Net premium paid to initiate the ratio spread amounts to $0.36 per contract. Thus, the investor makes money if shares in Boston Scientific trade below the effective breakeven point to the downside at $7.64 by February expiration. Maximum potential profits of $0.64 are available to the trader should shares fall 6.2% from the current price of $7.46 to settle at $7.00 at expiration. The sale of twice as many lower strike contracts expose the investor to losses should shares in BSX fall more than he expects before the options expire next month. Losses start to accumulate if shares decline 14.7% to trade below the lower breakeven price of $6.36 by February expiration day.

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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