Option Activity Alert: GG, LINE, IYR, YHOO

GG – Goldcorp, Inc. – Shares of the gold mining company are trading up at their highest in more than 2 years, and a number of options traders are betting Goldcorp’s shares have more room to run in the near term. Call options on GG are in high demand, with more than 3.1 calls changing hands on the stock for each single put option in action today. Shares in the name are currently up 3.5% at an intraday- and new 2-year high of $49.50. Investors expecting the price of the underlying to continue to move higher picked up more than 1,750 calls at the March $50 strike for an average premium of $0.84 apiece. Traders exchanged more than 6,600 calls up at the March $52.5 strike versus previously existing open interest of just 537 contracts. The majority of the calls, or roughly 4,500 contracts, were purchased at the March $52.5 strike for an average premium of $0.29 a-pop. Call buyers at this strike start making money if shares in Goldcorp rally another 6.6% over today’s high of $49.50 to surpass the average breakeven point at $52.79 by March expiration. Options implied volatility on the gold mining company increased 8.0% to 30.88% by 12:45pm.

LINE – Linn Energy LLC – The oil and natural gas company popped up on our scanners this morning due to options activity in the July contract. The spread appears to be the work of an investor positioning for shares to hit a new 52-week high ahead of expiration. Shares in Linn Energy LLC are down slightly by 0.33% to stand at $38.70 in early afternoon trade. It looks like the strategist responsible for the transaction sold 2,000 puts at the July $36 strike for a premium of $1.15 per contract in order to buy the same number of July $40 strike calls at a premium of $1.35 apiece. The net cost of taking the bullish stance on LINE amounts to $0.20 per contract, thus positioning the trader to profit should shares in Linn Energy increase 3.9% over the current price of $38.70 to exceed the effective breakeven price of $40.20 by July expiration. Linn Energy’s shares last traded above $40.00 back in May 2007.

IYR – iShares Dow Jones US Real Estate Index Fund – Shares in the IYR, an exchange-traded fund that tracks the performance of the real estate sector of the of the U.S. equity market, are down 1.05% to stand at $59.94 perhaps on comments from U.S. Treasury Secretary Timothy Geithner in testimony before the House Financial Services Committee regarding continued weakness in the sector. A number of bearish plays were initiated in IYR options this morning, including a sizable put spread in the September contract. It looks like one strategist positioned for shares in the ETF to continue to decline by purchasing 5,000 puts at the September $60 strike for a premium of $4.15 each, and selling the same number of puts at the lower September $54 strike at a premium of $1.95 apiece. The net cost of buying the spread amounts to $2.20 per contract, and prepares the put player to profit should shares in the fund fall another 3.6% to breach the effective breakeven price of $57.80 by September expiration. Maximum potential profits of $3.80 per contract are available to the investor if shares in the IYR drop 9.9% to trade below $54.00 at expiration in seven months. The overall reading of options implied volatility on the ETF shot up 11.0% to 20.06% by 11:45am in New York.

YHOO – Yahoo!, Inc. – A sizable stock and options combination play on Yahoo!, Inc. caught our eye today. It looks like the investor responsible for the transaction initiated a delta neutral position to benefit from bullish movement in the price of the underlying through October expiration. Shares in the online media company are currently down 1.00% to arrive at $16.24 as of 1:05pm. The options player appears to have sold 310,500 shares of the underlying at a price of $16.26 each, and purchased 11,500 calls up at the October $20 strike for a premium of $0.66 apiece, on a 0.27 delta. The trade positions the investor to profit should shares in YHOO spike higher ahead of expiration day in October. The options trader could profit from the short stock leg of the transaction if shares continue their downward trajectory, but more substantial gains are available to the upside if the price of the underlying rises sufficiently within the time remaining to 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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