Option Activity Alert: TYC, JWN, ACOR, MRO

TYC – Tyco International Ltd. – An investor expecting shares in Tyco International to remain range bound over the next couple of months constructed an iron condor on the industrial products company using call and put options expiring in April. Shares in Tyco are currently up 0.40% to stand at $46.98 as of 10:40am in New York. The options strategist appears to have sold the 900-lot April $48/$50 call spread to pocket an average net credit of $0.55 per contract, in combination with the sale of the 900-lot April $43/$45 put spread for an average net credit of $0.35 per contract. The iron condor yields a total net credit of $0.90 per contract, which the investor keeps in full as long as shares in Tyco International trade above $45.00 and below $48.00 through April expiration. Buying the higher-strike calls and the lower-strike puts reduces the harvestable premium on the short legs of the transaction, but also caps losses for the investor in case the position moves against him at some point. The investor faces maximum potential losses of $1.10 per contract if shares either rally above $50.00, or slip beneath $43.00 ahead of expiration day in April.

JWN – Nordstrom, Inc. – Shares in specialty fashion retailer, Nordstrom, are up 1.55% at $47.20 this morning following the firm’s better-than-expected fourth-quarter earnings report after the close of trading on Thursday. Nordstrom said it earned $1.04 a share in the quarter, beating average analyst estimates of $1.00 a share. Additionally, the retailer reported it is buying the online private sale marketplace HauteLook, which has some 4 million members, for $180 million in stock. Nordstrom is reportedly the first department store chain to purchase one of the limited-time deal, or ‘flash-sale’, websites. Trading in JWN by one options player suggests he may be unconvinced that better-than-expected earnings or the HauteLook deal will translate into higher shares in Nordstrom, at least in the near future. It looks like the investor sold a 1,000-lot straddle at the April $46 strike to pocket net premium of $4.65 per contract. The trader walks away with the full amount of premium received if shares in Nordstrom pull back to-, and settle at-, $46.00 at expiration in April. He keeps some part of the premium as long as shares trade within the upper and lower breakeven points, but starts to lose money if shares rally above the upper breakeven price of $50.65, or should shares drop below the lower breakeven point at $41.35, in the time remaining to expiration. The trader benefits from subsiding volatility as well as the passage of time by holding the short straddle. Options implied volatility on Nordstrom is down 20.9% to stand at 31.08% as of 11:20am in New York.

ACOR – Acorda Therapeutics, Inc. – The biopharmaceutical company popped up on our scanners early on in the trading session due to contrarian options activity in the July contract. Shares in Acorda fell as much as 5.9% to hit an intraday- and new 52-week low of $20.69 following the opening bell, but have since recovered somewhat to stand just 2.2% lower on the session at $21.50 as of 10:50am. The drug maker’s shares extended losses felt on Thursday after the firm’s fourth-quarter earnings report fell short of Street expectations. But, activity in July contract put options indicates one player is optimistic that shares in the name are not likely to slip too much further in the next four months. The stock has dropped 34.7% since trading up at a 2011-high of $31.67 on January 11th. It looks like the investor sold 1,550 of the July $20 strike puts, on zero lots of previously existing open interest, to pocket a net credit of $1.60 per contract. The trader keeps the full amount of premium on the sale as long as shares in Acorda exceed $20.00 through expiration day in July. Acorda’s shares have traded above $20.00 since October of 2009.

MRO – Marathon Oil Corp. – Large blocks of call options exchanged on Marathon Oil Corp. this morning appear to be the work of an investor taking profits and extending bullish sentiment on the stock. Shares in Marathon are down 0.30% to arrive at $49.93 at 11:20am. It looks like the trader likely purchased some 20,000 calls at the April $45 strike around the volume-weighted average price of $1.49 available on January 13, 2011, or the day open interest in the calls increased sufficiently to cover volume equaling 20,000 contracts. Shares closed at $42.98 on that day. In the weeks since the calls were purchased, shares in Marathon climbed as much as 17.6% to reach secure a new 52-week high of $50.56 on Thursday. Today, the investor sold the now deep in-the-money April $45 strike calls for a hefty premium of $5.56 per contract. Average net profits on the sale amount to $4.07 per contract. Next, the trader extended optimism on Marathon Oil Corp. by picking up 20,000 fresh call options at the higher April $50 strike for an average premium of $2.22 a-pop. The investor profits on the new position should shares in MRO rally another 4.6% to surpass the effective breakeven price of $52.22 in the time remaining to April expiration.

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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