Option Activity Alert: NYX, ATML, JCP, SWY

NYX – NYSE Euronext Inc. – Investors observed buying up call options on the global group of exchanges before trading in the name was halted this morning, are sitting pretty this afternoon with NYX shares trading up as much as 19.7% at a new 2-year high of $39.99. Reports that NYSE Euronext and Deutsche Boerse AG were in advanced talks to merge, lifted NYX shares before trading was suspended earlier in the session. Early-birds speculating that the rally was just getting started scooped up some 830 calls at the February $35 strike for an average premium of $0.56 each. These calls now tout an asking price of $3.65 apiece, an increase in value of around 550%. Other bulls picked up more than 2,600 calls at the higher February $36 strike for an average premium of $0.26 per contract this morning. The now deep in-the-money call options now cost $2.36 each, which is 808% more than first-movers paid earlier today. Investors who purchased the calls could potentially walk away with huge profits by selling the contracts in the span of just a few hours. Trading in NYX call options picked up significantly once trading in the name resumed. News of the merger-talks and rising demand for NYX options fueled a more than 53.1% rise in options implied volatility on the stock to 37.48% by 12:35pm in New York.

ATML – Atmel Corp. – The semiconductor manufacturer popped up on our scanners this morning after one trader reeled in profits on the sale of large block of call options that were originally purchased during the first week of trading in 2011. The same strategist extended and augmented bullish sentiment on Atmel Corp. by picking up calls in the May contract. Shares in Atmel are currently up 9.05% at $15.99 as of 11:30am, but earlier the stock increased as much as 14.6% to secure an intraday- and new 52-week high of $16.80. The chip maker posted better-than-expected fourth-quarter earnings of $0.22 a share, besting the average analyst forecast of $0.16 a share, after the closing bell on Tuesday. The sharp rally in Atmel’s shares at the start of the session spurred one investor to sell some 15,000 deep in-the-money call options at the February $13 strike for a premium of $3.40 each. Open interest patterns at that strike suggest the trader originally purchased the contracts for a premium of $1.00 apiece back on January 6, 2011. Net profits enjoyed on the sale amount to $2.40 per contract. Next, it appears to options player is replicating the bullish strategy on Atmel Corp., albeit with a longer time horizon. The investor purchased 25,000 calls up at the May $17 strike for a premium of $1.40 a-pop, on previously existing open interest of just 155 contracts. The call buyer is poised to profit on the fresh bullish stance should shares in the semiconductor manufacturer surge 9.5% over today’s high of $16.80 to surpass the effective breakeven price of $18.40 ahead of May expiration day. Atmel’s overall reading of options implied volatility is down 25.3% to stand at 46.08% following earnings.

JCP – J.C. Penney Co., Inc. – Shares in the third-largest U.S. department store operator hit a new 52-week high yesterday on positive retail sales data, and extended its run up on Wednesday following pre-market comments from Pershing Square’s Bill Ackman on CNBC’s Squawk Box. Ackman said JCP’s fair value is higher than where shares are currently trading, helping the price of the stock rise as much as 2.9% to an intraday- and new 14-month high of $36.05. Some relatively small bullish trades were initiated in the February and March contracts, with notable fresh trades occurring at the March $37 strike where roughly 800 calls were picked up for an average premium of $1.24 each. However, the largest position taken in J.C. Penney Co. options this morning is contrarian and indicates one strategist expects to see the price of the underlying pull back ahead of March expiration. The trader established a ratio put spread, buying around 5,600 puts at the March $35 strike for an average premium of $1.57 apiece, and selling some 11,200 puts at the lower March $31 strike at an average premium of $0.40 a-pop. The net cost of the spread amounts to $0.77 per contract, thus positioning the investor to make money should shares in JCP drop 5.05% from today’s fresh high of $36.05 to breach the average breakeven point on the downside at $34.23. Maximum potential profits of $3.23 per contract are available to the put player if shares in J.C. Penney plummet 14.0% to settle at $31.00 at expiration next month. The sale of twice as many of the lower-strike put options suggests that while the trader is positioning for bearish movement in the price of the underlying, he does not expect shares to collapse in the near future. The investor faces losses on the position in the event that shares plunge 23.0% to trade below the lower breakeven price of $27.77 before the puts expire in March.

SWY – Safeway, Inc. – Shares of the food and drug retailer rallied nearly 2.0% today to an intraday high of $21.61 and attracted bullish traders to the options playing field right out of the gate this morning. Investors expecting the price of the underlying to continue rising in the near term picked up more than 3,300 calls at the February $22 strike for an average premium of $0.16 each, on previously existing open interest of just 743 contracts. Call buyers at this strike stand prepared to profit should Safeway’s shares rally another 2.5% to surpass the average breakeven price of $22.16 ahead of expiration next week. Meanwhile, traders placing bullish bets on Safeway ahead of its fourth-quarter earnings report on February 24, 2011, before the open, scooped up calls in the March contract. It looks like some 2,500 call options were purchased for an average premium of $0.46 each at the March $22.5 strike. Investors long the calls start making money in the event that Safeway’s shares increase 6.25% to exceed the average breakeven price of $22.96 before the contracts expire next month. Options implied volatility on SWY jumped 15.5% to 31.70% by 12:50pm 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.

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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