Option Activity Alert: FLEX, BMY, CQB, TSS

FLEX – Flextronics International, Ltd. – The Singapore-based provider of electronics manufacturing services popped up on our scanners after one big player sold a massive straddle in the July contract. Shares in Flextronics are currently up 5.0% at $8.14 as of 11:55am in New York. The sizable straddle play composed of a total of 49,000 FLEX options is almost on par with the overall level of open interest on the stock of 56,483 contracts. It looks like the investor is reeling in time-rich, in-the-money call premium as well as just out-of-the-money put premium, in the expectation that volatility will come off and shares in the name will remain around this level. The straddle-strategist sold 24,500 calls at the July $8.0 strike for a premium of $0.70 each, and sold 24,500 puts at the same strike for a premium of $0.60 apiece. Gross premium pocketed on the transaction amounts to $1.30 per contract. The trader keeps the full premium received on the sale as long as shares in FLEX settle at $8.00 at expiration in July. The short straddle strategy implies the investor at least sees shares trading within a certain range through expiration. In this case, the trader keeps some of the premium received and staves off losses unless shares in FLEX swing above the upper breakeven price of $9.30, or slip beneath the lower breakeven point at $6.70. The short stance in both call and put options expose the trader to potentially devastating losses in the event that shares work against him in the next few months. However, the investor need not hold the position to expiration. The trader may be able to buy back the straddle at an advantageous price at some point, benefiting from the erosion of time value as well as subsiding levels of implied volatility.

BMY – Bristol-Myers Squibb Co. – Options on the biopharmaceutical company are more active than usual today perhaps after Goldman Sachs recommended buying call options on the stock. According to Bloomberg reporter Cecile Vannucci, an analyst at Goldman suggested the April $26 calls on Bristol-Myers may be a good buy given expectations of rising volatility and an upcoming U.S. regulatory decision regarding its treatment for melanoma. Shares of the drug maker increased as much as 2.2% during the session thus far to secure an intraday high of $25.96. Calls at the April $26 strike are certainly active today, but it looks like a larger proportion of today’s volume was employed to initiate a different strategy. The investor responsible for the trade does appear to be taking a bullish stance on the pharmaceuticals firm. In order to do so, it seems the options player sold 10,000 puts at the April $24 strike for a premium of $0.29 each, to buy the same number of calls up at the April $28 strike for a premium of $0.10 a-pop. The trader pockets a net credit of $0.19 per contract on the transaction, and keeps the full amount of premium as long as shares in BMY exceed $24.00 through April expiration. Additional profits start to accumulate in the event that the drug maker’s shares surge 7.9% over today’s high of $25.96 to trade above $28.00 by expiration day next month. More than 51,790 option contracts have changed hands on Bristol-Myers Squibb Co. as of 1:15pm in New York. Options implied volatility is up 7.1% at 21.93% in early-afternoon trade.

CQB – Chiquita Brands International, Inc. – Options traders breakfasted on Chiquita call options this morning despite the 4.2% drop in the price of the underlying to an intraday low of $14.90. The manufacturer of fresh produce opened higher, but quickly reversed course during the session and currently stands 2.5% lower on the day at $15.16 just before 11:45am. Chiquita’s shares slipped in extended trade yesterday after the firm’s fourth-quarter results missed estimates. Investors expecting the price of the underlying to improve in the next few months picked up in-the-money call options in the May contract. More than 3,280 calls changed hands at the May $15 strike versus previously existing open interest of just 352 contracts. The overwhelming majority of these calls appear to have been purchased for an average premium of $1.66 apiece. Call buyers make money in the event that Chiquita’s shares surge 9.9% over the current price of $15.16 to surpass the average breakeven point to the upside at $16.66 by May expiration. The overall reading of options implied volatility on CQB is down 20.6% to 52.63% post earnings.

TSS – Total System Services, Inc. – Shares in the provider of electronic payment processing services ticked up 3.05% today to touch an intraday- and new 2-year high of $18.54. Investors expecting the uptrend in TSS shares to continue scooped up call options right out of the gate this morning. Total System Services was raised to ‘Overweight’ from ‘Equal Weight’ with a share price target of $22.00 at Stephens this week. Bullish players hoping to see the stock hit new highs in the coming months purchased more than 2,000 calls at the May $20 strike for a premium of $0.20 per contract. Investors long the calls stand prepared to profit should shares in Total System Services jump 8.95% over today’s high of $18.54 to surpass the effective breakeven point at $20.20 by May expiration day. Shares in TSS last traded above $20.20 back in August 2008.

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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