Option Activity Alert: CHBT, JPM, ACOR, PLCM

CHBT – China-Biotics, Inc. – Demand for put options on the food products company jumped at the start of the session and continued to grow throughout the trading day with shares of the probiotics products maker dropping as much as 15.7% to hit an intraday low of $14.90. As of 1:25pm, the overall reading of options implied volatility on the stock has climbed 108.1% to 124.23%. Investors piled into put options right out of the gate this morning, exchanging more than 6,470 contracts at the February $15 strike on open interest of 1,400 lots. It looks like the majority of these puts, at least 3,600 of them, were purchased for an average premium of $1.71 each. Put buyers at this strike start to make money if shares in the Shanghai-based company fall another 10.8% off of today’s low of $14.90 to breach the average breakeven point to the downside at $13.29 by expiration day next month. Pessimism on the stock spread to the lower February $12.5 strike where some 2,300 puts were picked up at an average premium of $0.71 apiece. Investors holding these contracts stand prepared to profit in the event that China-Biotics’ shares plunge 20.9% to trade below the average breakeven price on the puts at $11.79. The sale of some 1,100 call options at the February $15 strike for an average premium of $1.91 per contract is also a sign of near-term bearish sentiment on CHBT. More than 22,440 options have changed hands on the stock in early afternoon trade on overall previously existing open interest of 36,277 contracts.

JPM – JPMorgan Chase & Co. – A massive call spread purchased on JPMorgan in the first 15 minutes of the trading session suggests one bullish strategist expects shares in the name to rally substantially ahead of March expiration. Shares in the financial services firm are up 0.60% to stand at $45.02 just before 11:15am in New York, but earlier increased as much as 1.8% to touch an intraday high of $45.54. The options trader responsible for the large-volume spread purchased 31,000 calls at the March $47.5 strike at a premium of $0.80 each, and sold the same number of calls up at the March $50 strike for a premium of $0.25 apiece. Net premium paid to initiate the spread amounts to $0.55 per contract. Thus, the trader is prepared to make money should JPM’s shares surge 6.7% over the current price of $45.02 to surpass the effective breakeven point to the upside at $48.05 ahead of expiration day. Maximum potential profits of $1.95 per contract are available to the investor if shares in JPMorgan jump 11.05% to trade above $50.00 before the calls expire in March. Shares in JPM secured their current 52-week high of $48.20 back on April 15, 2010. Other bullish players were observed buying in-the-money call options at the March $44 and $45 strikes during morning trading, as well.

ACOR – Acorda Therapeutics, Inc. – Opportunistic options players took advantage of the sharp decline in shares of Acorda Therapeutics this morning by selling out-of-the-money put options in the July contract. Shares in the biopharmaceutical company fell as much as 18.25% to touch down at an intraday low of $22.75 in the first half of the session on news an advisory panel of the European Medicines Agency recommended against approval of Fampyra, Acorda’s drug treatment for patients with MS, which was to be marketed in Europe by Biogen Idec. Perhaps armed with the belief that the bad news has been more or less priced into ACOR’s shares, contrarian traders looked to the July $22 strike to sell 3,000 put options outright for a premium of $1.75 per contract, and 2,000 puts at a premium of $2.10 apiece. Put sellers keep the full premium received as long as the biopharmaceutical firm’s shares trade above $22.00 through expiration day in July. These investors pocket the rich premium on the put options in exchange for bearing the risk that Acorda’s shares decline further in the time remaining to expiration. Parameters of the transaction indicate traders could end up having shares of the underlying put to them at an effective price of $20.25, or $19.90 each in the event that the put options land in-the-money and are exercised by expiration day. Options implied volatility on the stock is down 9.5% to stand at 52.82% as of 12:25pm.

PLCM – Polycom, Inc. – Activity in July contract call and put options on the telecommunications equipment company today appears to be the work of an investor we observed dabbling in the same expiry a couple of days ago. Polycom’s shares jumped as much as 21.05% earlier in the session to secure an intraday high of $46.22, the highest recorded price in at least 7 years, after the firm reported better-than-expected fourth-quarter earnings after the close on Thursday. Polycom earned $0.49 a share on revenue of $340 million, exceeding average analyst estimates of $0.43 a share on sales of $327.7 million. The stock was also helped higher by a number of analyst upgrades today. The investor populating Polycom options enacted a three-legged bullish spread on Wednesday to position for shares to rally. Today, it looks like he is rolling one chunk of short puts up to a higher strike price, booking profits on the position, as well as extending bullish sentiment on the stock by picking up a fresh batch of call options. The trader sold 3,639 puts at the July $35 strike for a premium of $1.80 each on Wednesday to help finance the cost of buying higher-strike call options. The investor bought back the puts this afternoon at a premium of $1.15 each, and rolled the short stance up to the July $40 strike for which he received $2.25 per contract in premium. At the same time, the investor purchased 3,120 fresh call options at the July $50 strike for a premium of $2.25 each. The purchase of the call options augment the trader’s upside exposure on the stock and position him to accrue additional profits should shares continue to hit new highs in the first half of 2011. As of 12:40pm, two out of the three legs of the original transaction remain untouched. This includes another short position in 3,639 puts at the July $37.5 strike, as well as a long stance in 7,278 calls at the July $45 strike. Options implied volatility on Polycom is down 30.7% at 37.86% just before 1:00pm in New York.

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.

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