Option Activity Alert: APH, CAVM, PCX, RVBD

APH – Amphenol Corp. – Call options on the manufacturer of electrical, electronic and fiber optic connectors, interconnect systems and coaxial and specialty cable are in high demand this afternoon with shares trading up 3.2% to reach an all-time high of $57.10 by 12:25pm. Investors expecting Amphenol’s shares to continue to rise in the near term purchased in- and out-of-the-money call options in the February contract. More than 4,200 in-the-money calls changed hands at the February $55 strike on paltry previously existing open interest of 561 contracts. It looks like the majority of the calls were purchased for an average premium of $2.38 a-pop. Investors long the calls are poised to profit should shares in Amphenol Corp. surpass the average breakeven price of $57.38 ahead of February expiration. Bullish players looked up to the February $50 strike, as well, exchanging more than 1,400 calls at that strike on scant open interest of 10 contracts. Approximately 1,000 of the higher-strike call options traded on the ask for an average premium of $0.40 each. Traders purchasing the calls start to make money in the event that APH shares gain another 5.8% to exceed the average breakeven price of $60.40 before the contracts expire in a few weeks.

CAVM – Cavium Networks, Inc. – Shares in the provider of semiconductor processors shot up 14.7% in the first 15 minutes of the trading session to secure an intraday high of $45.35 following the firm’s better-than-expected fourth-quarter earnings report released after the close of trading on Monday. Cavium also revealed its forecast for first-quarter profit is greater than that of Wall Street, which helped shares higher and spurred a number of analyst upgrades today. Although signs of optimism on CAVM abound, a more pessimistic view appears to be playing out in March contract put options. It looks like one strategist purchased a put spread, buying up 2,000 of the March $45 strike options for an average premium of $2.675 each, and selling the same number of puts at the lower March $40 strike at an average premium of $0.70 apiece. The net cost of the spread amounts to $1.975 per contract. The investor responsible for the transaction may be utilizing the spread to hedge a long position in the underlying stock, or could be taking an outright bearish stance on Cavium through March expiration. The put player starts to make money on the position if shares in Cavium Networks drop 5.1% off today’s high of $45.35 to slip beneath the average breakeven price of $43.025 ahead of expiration day next month. The overall reading of options implied volatility on CAVM is lower by 13.7% to arrive at 38.41% in early afternoon trade.

PCX – Patriot Coal Corp. – Bullish options traders scooped up March contract call options on the St. Louis, MO-based coal producer right out of the gate this morning after the firm posted fourth-quarter earnings that were far better than expected. Patriot Coal’s shares are up 5.9% at an intraday- and more than 2-year high of $27.71 as of 11:10am in New York. The company reported net profits of $0.08 a share before the opening bell, which handily beat the average forecast of around a $0.34 loss per share. Early-bird bulls expecting Patriot’s shares to continue to hit new highs in the next couple of months picked up 4,250 calls at the March $31 strike within the first few minutes of the session for an average premium of $1.01 each. Call buyers start to make money if shares in PCX jump 15.5% over today’s high of $27.71 to surpass the average breakeven price of $32.01 ahead of expiration day in March. Patriot Coal’s overall reading of options implied volatility fell 11.1% to 59.61% post earnings.

RVBD – Riverbed Technology, Inc. – Bearish players are piling into Riverbed Technology put options today with shares in the name currently trading 2.6% lower on the session at $34.94 as of 11:30am in New York. Shares in the WAN optimization firm actually rallied briefly at the start of trading, but quickly gave up ground at around the same time that options traders started bulking up on March contract puts. More than 38,800 puts have changed hands at the March $34 strike on previously existing open interest of 12,894 contracts. It looks like the majority of the put options are being purchased for an average premium of $1.48 each. Put buyers positioning for shares in Riverbed to pullback further start to make money in the event that the price of the underlying falls another 6.9% from the current price of $34.94 to breach the average breakeven point on the downside at $32.52 ahead of March expiration. Riverbed Technology’s shares traded down as low as $31.42 last Tuesday. The stock more than doubled in the past 52 weeks, having rallied 257.2% off a 52-week low of $11.18 on February 3, 2010, up to a 52-week high of $39.94 on January 14, 2011.

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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