Option Activity Alert: IBM, CHSI, TCB, BC

IBM – International Business Machines Corp. – Bulls positioning for shares in IBM to extend gains flocked to the options market today, populating weekly as well as longer-dated expiries with signs of optimism. Shares in the computer services company increased as much as 3.35% during the session to secure an intraday- and new all-time high of $167.72. The stock jumped after a number of analysts raised their share price targets in the aftermath of IBM’s analyst meeting on Tuesday. Investors expecting the uptrend to continue at least through the end of this week purchased March $165 and $170 strike calls, and sold nearly 2,000 of the March $165 strike puts in the weekly contract set to expire on Friday. Bullish sentiment spread to the March contract call options set to expire on the 18th of this month, with investors buying around 2,000 in-the-money calls at the March $165 strike for an average premium of $2.60 each. Call volume is greatest at the higher March $170 strike where more than 9,950 calls changed hands on open interest of 5,480 contracts. It looks like the majority of the calls were purchased for an average premium of $0.62 apiece. Investors long the higher-strike calls are poised to profit should shares in IBM rally another 1.7% to surpass the average breakeven price of $170.62 by expiration day. IBM is scheduled to report first-quarter earnings after the market closes for the day on April 18, 2011.

CHSI – Catalyst Health Solutions, Inc. – Options on the full-service pharmacy benefit management (PBM) company are active today on news it agreed to purchase Walgreen Company’s PBM business for $525 million. Shares in Catalyst Health Solutions jumped 18.3% during the session to hit an intraday and all-time high of $52.69. One options player appears to have nearly doubled his money in the span of three weeks by taking profits on a bullish stance initiated back on February 16, 2011, when shares in CHSI closed at $45.65. It looks like the investor originally purchased 337 in-the-money calls at the June $45 strike for a premium of $4.10 each, and today sold the calls for a hefty premium of $8.00 a-pop. Overall, investors traded more than 2,370 options on Catalyst Health Solutions during the first half of the session, with roughly equal numbers of call and put options at work.

TCB – TCF Financial Corp. – Shares in the financial services firm dropped 3.4% in early-afternoon trade to an intraday low of $15.66 after the firm said it is offering $200 million of its common stock. Near-term options activity on the stock suggests some investors are positioning for the price of the underlying to give up more ground ahead of March expiration. More than 5,250 put options changed hands at the March $15 strike today versus open interest of just 360 contracts. The overwhelming majority of the puts appear to have been purchased for an average premium of $0.17 each. Bears holding the put options are prepared to make money should shares in TCF Financial Corp. fall another 5.3% off today’s low of $15.66 to breach the average breakeven point to the downside at $14.83 by March expiration day. Options implied volatility on the stock is up 8.6% to stand at 36.42% as of 1:45pm in New York.

BC – Brunswick Corp. – Bullish signs in Brunswick Corp. options caught our eye today with shares in the global manufacturer and marketer of boats and billiards tables trading 0.70% higher on the session at $24.37 just before 12:15pm in New York. Approximately 3,600 puts changed hands at the June $21 strike on paltry previously existing open interest of just 345 contracts at that strike. It looks like around 2,500 of the puts were sold at a premium of $1.00 apiece. Put sellers keep the full premium pocketed on the trade as long as shares in the largest publicly traded boat manufacturer exceed $21.00 through expiration day in June. Brunswick Corp. reports first-quarter earnings ahead of the opening bell on April 28, 2011, which is well in advance of June expiration. Investors short the puts will benefit from the effects of time erosion as well as subsiding levels of implied volatility. Put sellers could choose to buy back the puts at an advantageous price ahead of earnings, or maintain the bullish stance through June 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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