Option Activity Alert: TIF, EWJ, FSLR, HD

TIF – Tiffany & Co. – The retailer of fine jewelry and other high-end luxury goods has not lost its sparkle according to some contrarian traders establishing bullish bets on the stock this morning. Shares in Tiffany & Co. fell as much as 8.8% to an intraday low of $54.58 today, but pared some of the earlier losses to stand 3.9% lower on the session at $57.52 as of 11:35am in New York. One investor betting on a recovery in the price of Tiffany & Co. shares initiated a three-legged spread to prepare for the rebound. The trader sold 2,500 puts at the January 2012 $50 strike for an average premium of $4.62 each, purchased the same number of in-the-money calls at the January 2012 $55 strike at an average premium of $8.46 per contract, and sold 2,500 calls up at the January 2012 $70 strike for an average premium of $2.77 a-pop. Net premium paid to establish the bullish position amounts to $1.07 per contract. Thus, the options player is prepared to make money in the event that Tiffany’s shares exceed the average breakeven price of $56.07 through expiration day in January. Maximum potential profits of $13.93 per contract pad the investor’s wallet in the event that shares surge 21.7% over the current price of $57.52 to trade above $70.00 by expiration next year. The jewelry retailer’s shares currently tout an all-time high of $65.76, attained back on December 21, 2010. Finally, it looks another trader pocketed profits today on a long-term bearish bet established last month on Valentine’s Day. It appears the investor originally purchased 500 puts at the January 2012 $60 strike for a premium of $5.65 each on February 14, when shares in TIF traded as high as $65.59. Today, it looks like the trader sold the now in-the-money puts for a hefty premium of $9.40 apiece. Net profits on the put sale amount to $3.75 per contract. The overall reading of options implied volatility on Tiffany & Co. is up 11.1% at 45.23% just before 11:55am. The luxury goods retailer is slated to report fourth-quarter earnings before the market opens next Monday.

EWJ – iShares MSCI Japan Index ETF – A massive outright bullish play was initiated on the EWJ this morning by one player positioning for a rebound in the price of the underlying fund. Shares are currently down 2.4% at $9.81 as of 12:50pm in New York, having recovered from an earlier intra-session low of $9.24. Options volume on the EWJ, an exchange-traded fund that tracks the performance of the Japanese equity market, has topped 445,000 contracts thus far today with ample time remaining for additional activity to send that number higher. Roughly half of the volume was generated by one player who sold puts to buy call options on the fund. The spread involved the sale of 102,500 puts at the April $8.0 strike for a premium of $0.10 each, and the purchase of the same number of calls up at the April $11 strike at a premium of $0.14 a-pop. Net premium paid for the trade amounts to $0.04 per contract. The trader responsible for the transaction profits in the event EWJ shares reverse course ahead of April expiration. From an at-expiration view, profits accumulate if the price of the underlying jumps 12.5% over the current price of $9.81 to surpass the effective breakeven price of $11.04 by expiration day next month. Options implied volatility on the fund is up 41.7% at 49.46% as of 1:00pm.

FSLR – First Solar, Inc. – Shares in the manufacturer of renewable energy equipment continued their run up today in the face of mounting fears stemming from the nuclear crisis that continues to unfold in Japan. Bulls anticipating greater demand for energy generated via solar and wind sources continued to drive up shares in various renewable energy stocks today. First Solar’s shares rallied as much as 6.6% today to secure an intraday high of $156.63. The stock gained around 13.5% since Friday’s opening price of $137.95. Analysts at Morgan Stanley cited First Solar as one name well positioned to benefit from the push for additional renewable capacity over the next decade, which likely helped drive shares higher, as well. Near-term bulls were most active during the current session. Traders positioning for the uptrend to extend at least through March expiration on Friday picked up more than 2,300 calls at the March $155 strike for an average premium of $2.52 each. Optimism spread to the higher March $160 strike where another 1,400 call options were purchased at an average premium of $0.96 each. Bulls also looked to the March $165 strike to buy around 2,200 calls for an average premium of $0.54 per contract. Investors long the March $165 strike calls profit if shares in First Solar increase another 5.7% over today’s high of $156.63 to trade above the average breakeven price of $165.54 by expiration. More than 46,500 contracts have changed hands on the stock as of 1:25pm.

HD – Home Depot, Inc. – Large prints in Home Depot call options appear to be the work of an investor rolling a bullish stance on the provider of home construction goods and services out a few months. Shares in the Atlanta, GA-based firm are down slightly by 0.85% to arrive at $36.37 in early-afternoon trade. The investor appears to have originally constructed a bullish position on Home Depot by purchasing 10,000 in-the-money calls at the March $36 strike for a premium ranging from $1.64 to $1.85 per contract back on January 28, 2011, when the price of HD shares closed at $37.89. The decline in the price of Home Depot’s shares, coupled with the effects of time erosion since the calls were purchased, dragged premium on the contracts down. The investor sold all 10,000 contracts for a premium of $0.58 each this morning, and opened the bullish stance once more up at the May $37 strike. The trader paid a premium of $1.25 per contract for 10,000 of the May $37 strike call options. In isolation, profits start to amass on the fresh bullish stance should shares in HD rally 5.2% over the current price of $36.37 to surpass the breakeven point on the upside at $38.25 by May expiration day. Home Depot reports first-quarter earnings ahead of the opening bell on May 17, 2011, just three days ahead of expiration for May option contracts.

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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