Option Activity Alert: JEC, GLW, TM, AKS

JEC – Jacobs Engineering Group, Inc. – The third-largest listed U.S. engineering company popped up on our scanners today after one option strategist initiated a big delta neutral position using a large number of long-dated, in-the-money put options tied to more than 1 million shares of the underlying stock. Shares in Jacobs Engineering Group increased as much as 7.3% during the first half of the session to secure a new 2-year high of $53.10. JEC reported weaker-than-expected first-quarter results before the market opened on Tuesday, but increased earnings guidance for the full year. A spate of target share price increases and ratings upgrades from a number of analysts helped shares in Jacobs Engineering higher today. The investor responsible for nearly all of the volume in options traded on JEC today seems to be taking a contrarian view on the stock, positioning for bearish movement in the price of the underlying, while not entirely standing in the way of the rally or bullish sentiment. The trader appears to have shelled out a total of $67.127 million ($11 million for the puts, $56.127 million for the stock) to purchase 1,060,000 shares of the underlying at $52.95 each, and 20,000 in-the-money put options at the July $55 strike for a premium of $5.50 apiece on a 0.53 delta. The position may work in the investor’s favor if shares move sufficiently higher or if shares fall, however, the potential for the greatest gains lies to the downside because the value of the puts will grow much more quickly and offset any losses incurred on the decline in share price. Shares in JEC are soaring at their highest in two years but this put player is prepared to make out handsomely if the good times should come to an end.

GLW – Corning Inc. – Bullish options traders are dominating the scene at Corning this morning with shares in the glass maker now extending gains realized after the firm’s earnings report on Tuesday. Corning’s shares increased as much as 3.6% thus far in the session to touch an intraday- and new 52-week high of $21.97. The stock is up 14.2% since Monday morning. Call options in the front month are drawing major crowds, with buyers targeting both in-the-money and out-of-the-money contracts. Approximately 4,400 calls changed hands at the February $22 strike this morning on previously existing open interest of 5,372 lots. It looks like most of the open positions in calls at that strike were generated by call buyers who paid an average of $0.40 in premium apiece on Tuesday. The majority of the calls changing hands at that strike today were purchased for an average premium of $0.44 each. Bulls looked to the longer-dated March $23 strike to pick up more than 4,300 call options for an average premium of $0.34 per contract. Investors holding the higher-strike calls start to make money if shares in Corning jump 6.2% over today’s high of $21.97 to surpass the average breakeven price of $23.34 ahead of expiration day in March.

TM – Toyota Motor Co. – Investors expecting shares of the world’s largest automobile producer to extend losses in the near future are parking themselves in long put options in the February contract. Toyota’s shares fell as much as 2.0% this morning to an intraday low of $82.17 after company recalled roughly 1.7 million vehicles worldwide due to fuel-system problems. Traders eyeing the potential to profit from Toyota’s pain purchased more than 2,000 puts at the February $80 strike for an average premium of $0.87 per contract. Perhaps buyers of the contracts are speculating that any additional disappointments, such as further recalls or a weaker-than-expected third-quarter earnings report on the morning of February 3, 2011, from the Camry-maker could send shares lower and the value of the puts options flying. Investors long the put options are prepared to make money should shares in the name drop 5.6% to breach the average breakeven point on the downside at $79.13 by February expiration. Option players populating Toyota Motor Co. today exchanged more than 13.2 puts on the stock for each single call option in action by 12:40pm in the trading session.

AKS – AK Steel Holding Corp. – Call options on the steel maker are flying off the shelves this morning with shares in AK Steel Holding Corp. rising as much as 6.2% to an intraday high of $16.53. Industry participants AK Steel, U.S. Steel and Steel Dynamics, reported earnings earlier this week. Shares in all three are higher today as forecasts for higher steel prices and increasing demand paint a rosier picture for the industry going forward. Near-term bulls expecting AK Steel to extend gains picked up more than 1,180 now in-the-money calls at the February $16 strike for an average premium of $0.66 apiece. Optimism spread to the higher February $17 strike where some 1,500 call options were purchased for an average premium of $0.32 each. Call buyers at this strike make money if AKS shares rally another 4.8% over today’s high of $16.53 to surpass the average breakeven point to the upside at $17.32 by expiration day next month. In-the-money calls are also popular at the March $16 strike where just fewer than 3,000 calls traded on the ask at an average premium of $0.94 a-pop. More than 20,800 option contracts have changed hands on AK Steel Holding Corp. as of 11:55am in New York trading.

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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