Option Activity Alert: UAL, HBI, SFLY, TOL

UAL – United Continental Holdings, Inc. – The airline operator’s shares rose 4.3% this morning to an intraday high of $23.76, rebounding 9.7% off of its lowest point of the week at $21.65, but still trading substantially lower than last week’s closing price of $27.02. Shares relinquished some of the earlier gains this afternoon to stand 1.65% higher on the session at $23.16 as of 12:15pm in New York. At least one options strategist is positioning for UAL’s shares to continue recovering in the next couple of months. It looks like the investor employed April contract ratio call spreads to prepare for a sizable, albeit limited, correction higher by expiration day. The trader appears to have purchased approximately 3,000 in-the-money calls at the April $22 strike for an average premium of $2.49 apiece, and sold roughly 6,000 calls up at the April $27 strike for an average premium of $0.52 each. The net cost of the transaction amounts to an average of $1.45 per contract, and positions the trader to profit in the event that UAL’s shares rally 1.25% over the current price of $23.16 to surpass the average breakeven point on the upside at $23.45 by April expiration. Maximum potential profits of $3.55 per contract are available to the trader should shares in United Continental Holdings jump 16.6% to settle at $27.00 at expiration in a couple of months. The sale of twice as many higher-strike call options expose the investor to losses should the stock fly higher than he expects within the time remaining to expiration. Profits give way to losses on this strategy if shares in UAL jump 31.9% to exceed the upper breakeven price of $30.55 by April expiration day. The call options transacted in the ratio spreads represent opening positions given the minimal levels of open interest observed at either strike price.

HBI – Hanesbrands, Inc. – Bullish options traders have their hands on Hanesbrands call options this morning with shares in the consumer goods company rising as much as 2.5% earlier in the session to secure an intraday high of $25.51. Near-term optimists positioning for the price of the underlying to extend gains appear to have purchased the majority of some 3,700 in-the-money calls exchanged at the March $25 strike, on paltry previously existing open interest of just 112 contracts. Investors buying the calls paid an average premium of $1.14 a-pop, and are poised to profit should shares in Hanesbrands rally another 2.5% over today’s high of $25.51 to surpass the average breakeven price of $26.14 ahead of March expiration. The sharp rise in demand for call options on HBI helped lift the stock’s overall reading of options implied volatility 17.4% to 38.37% as of 11:15am in New York.

SFLY – Shutterfly, Inc. – Shares in the Internet-based provider of photo-based products and services increased as much as 4.0% this morning to hit an intraday high of $42.59. The firm said Wednesday that Jeffrey Housenbold, the President and CEO of Shutterfly, will speak at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco this coming Monday. The stock is currently up 1.85% to stand at $41.74 as of 11:20am. Investors populating Shutterfly options are placing near-term bullish bets on the stock. Most of the volume generated in the first half of the session was in March contract where investors were seen selling put options. Traders sold more than 2,000 puts at the March $40 strike on open interest of just 84 contracts to pocket premium of $0.70 each. Put sellers keep the full premium as long as Shutterfly’s shares exceed $40.00 through expiration day next month. Shares in SFLY last traded below $40.00 on February 3, 2011. But, investors short the puts appear ready and willing to have shares of the underlying put to them at an effective price of $39.30 in the event that the contracts land in-the-money at expiration.

TOL – Toll Brothers, Inc. – The luxury home builder popped up on our scanners early in the trading day after options players generated substantial volume in near-term call options. Shares in Toll Brothers are currently down 0.95% at $21.00 as of 12:30pm in New York. The stock had rallied on Wednesday after the firm said it swung to a first-quarter profit of $0.02 a share, which exceeded the average analyst forecast of a loss of $0.08 a share. According to figures out of the Commerce Department this morning, purchases of new homes in the U.S. declined 13% in the month of January. Some investors, at least in the near-term, are placing bullish bets on Toll Brothers despite the new home sales figures. Call buying activity is perhaps a sign that traders are still optimistic following earnings from the luxury home builder, and are expecting shares to edge higher through March expiration. More than 10,800 in-the-money calls changed hands at the March $21 strike versus open interest of 1,892 contracts. At least 4,100 of the calls were purchased for an average premium of $0.93 a-pop. Investors long the calls start making money if shares in TOL rally 4.4% over the current price of $21.00 to surpass the average breakeven price of $21.93 by expiration day next month. Options implied volatility on the home building company rose 8.5% this afternoon to stand at 38.47%.

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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