BEN – Franklin Resources, Inc. – Put options on the provider of investment management and related services through subsidiaries Franklin, Templeton, Mutual Series, Bissett, Fiduciary and Darby, are more active than usual this morning. It looks like some traders are taking a cautious stance on the stock, and perhaps with good reason. On May 2 the stock managed to rally to within $0.20 of its February 16 52-week high of $130.97, but between those two dates, BEN’s shares dropped nearly 13.5% to as low as $113.34 on March 15. Imagine put buyers are long the stock. Longs could be concerned about Franklin Resources’ failure to hit a higher-high recently, but not so worried that they’re ready to ditch the stock all together. Holding put options on BEN serves to alleviate fears of a pullback and allows traders to benefit in the event that the stock pushes higher over the next couple of months. BEN’s shares are currently down 0.60% to stand at $126.35 as of 11:40am in New York. Investors traded more than 3,600 puts at the June $120 strike on open interest of 913 contracts. It looks like the majority of the puts were purchased today for an average premium of $2.28 a-pop. Put buyers profit, or realize downside protection, should BEN’s shares plunge 6.8% from the current price of $126.35 to breach the average breakeven point on the downside at $117.72 by expiration day next month. An alternative interpretation of the put activity on BEN is that investors are placing outright bearish bets on the stock. Traders employing this type of strategy are looking to profit from a sharp decline in the price of the underlying by expiration. The rise in demand for put options on Franklin Resources helped lift the overall reading of options implied volatility on the stock 3.2% to 22.35% in early-afternoon trade.
NVDA – NVIDIA Corp. – September contract call options are a-buzz with bearish activity today with shares in the chip maker slipping as much as 2.9% to an intra-session low of $17.51 today. Trading in NVIDIA Corp. calls is outpacing that of put options 1.4 contracts to 1.0 this afternoon, but the seemingly bullish ratio belies the pessimistic tone to trading on the stock. Investors sold around 3,000 in-the-money calls at the September $16 strike on previously existing open interest of just 614 contracts. Call sellers at this strike received an average premium of $2.77 per contract on the transaction, and keep the full amount if shares in NVDA drop below $16.00 by September expiration. Pessimism spread to the higher September $17 strike where traders sold 3,185 in-the-money calls to pocket an average premium of $2.14 apiece. Sellers targeting the September $18 strike shed 2,000 calls at that strike in exchange for $1.64 in premium per contract. Finally, two-way trading traffic in September $19 strike calls saw roughly equal numbers of the contracts purchased and sold for an average premium of $1.24 each. Volume has topped 6,400 calls at the September $19 strike against open interest of 2,022 contracts. Investors short the calls may be covered and long the stock, or could be engaging in naked short selling of the options. Outright short positions in the calls expose traders to unbridled losses in step with any rise in shares above the strike price of the short call plus premium received on the sale of the option. Investors may also simply be selling volatility on NVDA in the expectation of subsiding levels of implied volatility on the stock going forward. Declines in volatility pull option premium down with it; as such, shares need not decline any further for call sellers to bank gains on their transactions at some point ahead of expiration. Traders could close out their short positions by buying back the contracts for less than they received today if volatility continues to subside. Volatility on NVDA has come off 6.7% to arrive at 41.77% as of 1:55pm.
XL – XL Group PLC – The insurer popped up on our scanners this morning after one strategist initiated a sizable options combination play in the June contract. It looks like the investor sold a strangle on XL Group in order to position for range-bound shares and subsiding levels of implied volatility on the stock through expiration next month. Shares in the insurer rallied as much as 1.5% during the session to touch an intraday high of $23.72. The strangle-strategist appears to have sold 7,000 puts at the June $23 strike at a premium of $0.48 each, and 7,000 calls up at the June $24 strike for a premium of $0.48 a-pop. Premium pocketed on the transaction amounts to $0.96 per contract. The investor keeps the full amount of premium as long as shares in XL settle between $23.00 and $24.00 at expiration in June. Profits start to slip away if the price of the underlying swings outside of the strike prices indicated, with losses accumulating above the upper breakeven share price of $24.96, and beneath the lower breakeven point at $22.04. XL’s shares have traded above $22.04 since March 19, but topped $24.96 more recently on April 13.
BLL – Ball Corp. – One options player appears to be reeling in substantial profits on a previously established long call position on the supplier of metal and plastic packaging today. Shares in Ball Corp. are up 0.60% to stand at $39.49 just after 1:00pm in New York. It looks like the trader sold 3,133 calls at the August $32.5 strike this morning at a premium of $6.90 per contract. Call open interest patterns at that strike suggest the contracts may have been purchased back on March 17 when shares in Ball were hovering around $33.94. At that time the stock was a couple of days into what would become a sharp rally that saw shares in BLL surge 16.5% in the span of roughly four weeks to today’s intraday- and new 52-week high of $39.55. On March 17 traders purchased around 4,400 call options at the August $32.5 strike. The calls on that day were trading at premiums as low as $3.10 to as high as $3.50 during the session. The sale of the calls at $6.90 apiece today suggests the trader walked away with net profits of between $3.40 and $3.80 per contract. Open interest at that strike indicates fresh positions were also initiated in calls on March 30 when premium on the options was trading in the range of $4.00 to $4.30 each. If it’s the case that the calls were originally purchased on March 30 rather than March 17 as proposed above, net profits on the sale of the options today is adjusted to between $2.60 and $2.90 a-pop. Options implied volatility on the stock shrank 5.8% this afternoon to 17.75% as of 1:30pm.