Option Activity Alert: LDK, BP, ASH, VIA

LDK – LDK Solar Co. Ltd. – The prospects look brighter for solar panel maker according to its president who told Taiwanese electronics website DigiTimes that the industry hit its low point in the first quarter. LDK’s chief also told the website not only to expect a second-quarter rebound but that the industry was not playing out investors’ currently pessimistic scenario. Adding fuel to a rally across shares in the renewable energy sector was confirmation from Germany that its last nuclear power station would close in 2022. One investor struck to make a bullish play on LDK by writing put options expiring in less than three weeks raking in a total premium of $145,000. The investor sold 5,000 put options for 29 cents apiece guaranteeing to take delivery of 50,000 shares at $7.00 each by June 17. Just two weeks ago LDK’s share price meaningfully breached $10.00 for the first time since September on fears for earnings across the industry. Last week they traded as low as $6.14 before today’s rally took hold and kicked them back to as high as $7.24. Currently the speculative strategy is an at-the-money investment, but by taking in the 29 cent premium the investor is effectively lowering his buy price to $6.71 and presumably is banking on June 7 earnings to help vilify his stance.

BP – BP Plc – Shares in Europe’s second-largest oil company have performed strongly in recent weeks, shrugging off a disastrous outcome with its Russian subsidiary that left it floundering without an expansion policy. Nevertheless investors have warmed to recent news of possibly less financial liability resulting from the Gulf of Mexico spillage one year ago. Shares reached the highest since May 2 on Tuesday in early going although have pared gains throughout the morning. One investor struck early to either defend against a reversal in the recent recovery or perhaps is wagering that the gains won’t stick. An investor paid 17 cents to buy around 10,000 put options on the oil-giant targeting the $44.00 strike while shares traded at $46.53. With the stock back at $46.05 the puts are currently playing out and have currently added five cents. The company earlier announced a reduction in output from the North Sea Forties field for the next two months, while boosting its forecast by 16% for output during September. The oil field provides around one-third of the U.K.’s oil supply.

ASH – Ashland Inc. – Call options trading in Valvoline oil-producer more than doubled in value following a coup for the company in announcing the acquisition of privately held International Specialty Products Inc. (ISP). The $3.2 billion purchase of ISP, manufacturer of personal-care and pharmaceutical products is expected to add 50% to annual earnings lifting EBITDA to $1.1 billion. Shares in Ashland surged through the previously established 52-week high following the announcement and are currently trading with an 11% gain at $67.91. Call option buyers made a beeline for the $70.00 strike line scooping up 2,000 contracts following the news. Some lucky investors paid between 50-75 cents for rights to buy stock before contracts expire in June and before prices on call options leapt to $1.50 each. Call options at the October $75.00 strike were also actively traded changing hands at $2.40 throughout the morning.

VIA – Viacom Inc. – One investor appears to be concerned that Viacom’s strong run-up leaves the stock vulnerable to a correction before the year-end. Shares remain marginally higher at $50.11 while our market scanner detects a possible bearish warning on the cable company. Using the December series an investor appears to have paid $1.80 for 10,000 put options at the $45.00 strike while selling the same amount of calls at the $55.00 strike. If you take a look at a chart of Viacom’s price performance it’s hard to argue at this point that the investor doesn’t have a good point. A run-up stretching back to August has seen the stock ascend from $30.39 to $51.93 as recently as early May. But the failure to build further may have the potentially bullish investor a little concerned. A reversal-play using options would see the investor carrying a bullish stock position protect it using put options. On the other side of the trade, the investor picks an exit to allow the stock to be called away should shares ever reach the exit price at expiration. The investor appears to have reduced the cost of such protection to just 50 cents today and will only walk away from the stock assuming it does rise by a further 10% before December expiration arrives.

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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