Option Activity Alert: RIMM, TMO, CNO, PIP

RIMM – Research In Motion Ltd. – Ouch. Shares in the BlackBerry maker plunged 23.35% today to an intraday- and four-year low of $27.08 following the release of worse-than-anticipated first-quarter earnings on Thursday after the close. Ongoing concerns regarding RIMM’s ability to stay competitive in the smartphone market coupled with the company’s second revision lower to earnings estimates for the full year were reason enough for investors to punish the stock. Options volume on Research In Motion is greater than 565,000 contracts as of 1:05pm in New York. Puts are trading roughly 1.75 times to each single call option in play this afternoon. Trading traffic is heaviest in June contract options expiring today, while weekly options expiring next Friday generated interest, as well. Nearer-term contracts are certainly the most popular today, but traders are also generating substantial volume in longer-dated options. The largest single print in options on the stock thus far in the session appears to be the work of one strategist profiting from RIMM’s pain. It looks like the investor purchased roughly 30,000 puts at the January 2012 $35 strike for a premium of $4.80 on Wednesday. The nose-dive in the price of the underlying stock sent premium on those puts flying, and it appears the trader sold the position for $7.80 a-pop within the first 25 minutes of the opening bell this morning. In roughly 48 hours, the put buyer has banked net profits of $3.00 per contract on the position, or total gains of approximately $9 million. Next, it looks like the investor extended bearish sentiment on the stock by purchasing another chunk of around 30,000 puts at the lower January 2012 $30 strike for a premium of $4.76 each. The fresh lot of puts position the trader to profit should shares in RIMM trade beneath the effective breakeven price of $25.24 at expiration next year. Of course, the put buyer need not wait until expiration to take profits on position if premium on the options moves in his favor in the days or months ahead. Options implied volatility on RIMM is down 18.9% post-earnings to stand at 52.20% as of 1:25pm.

TMO – Thermo Fisher Scientific, Inc. – A bullish risk reversal on Thermo Fisher Scientific this morning yields a sizeable net credit to one option strategist now positioned to potentially increase profits if shares in the medical equipment maker extend gains through July expiration. Shares in the Waltham, MA-based company increased as much as 2.8% thus far in the session to as high as $62.40. The trader appears to have sold 2,000 puts at the July $60 strike for a premium of $1.00 each in order to purchase the same number of calls up at the July $65 strike at a premium of $0.50 apiece. The net credit of $0.50 per contract received on the transaction is safe in the investor’s wallet as long as shares in TMO exceed $60.00 through expiration day next month. Additional profits are available to the trader if shares rally another 4.3% over today’s high of $62.40 to surpass the effective breakeven price of $65.00 at expiration. The sale of the put options suggests the trader at least expects shares in Thermo Fisher Scientific to exceed $60.00 over the next four weeks. The short puts also indicate he stands ready to have 200,000 shares of the underlying stock put to him at an effective price of $59.50 should the puts land in-the-money at expiration. The call and put options employed expire ahead of TMO’s second-quarter earnings announcement on July 27. Shares in the company last traded above $65.00 on June 1, and reached a 52-week high of $65.82 on May 19.

CNO – CNO Financial Group, Inc. – Bullish trading in CNO Financial Group options caught our eye this morning with shares in the insurer rising as much as 1.95% to an intraday high of $7.33. Investors expecting shares in the name to extend gains over the next several months scooped up September contract call options. It looks like bullish players exchanged more than 5,000 calls at the September $8.0 strike against previously existing open interest of just 895 contracts. Nearly all of the calls appear to have been purchased for an average premium of $0.35 a-pop. Call buyers make money if shares in CNO Financial surge 13.9% in the next three months to trade above the average breakeven price of $8.35 at expiration day in September. The price of the underlying stock traded one penny below the $8.35 breakeven point as recently as May 3, but has not topped that price level since Fall of 2008. CNO reports second-quarter earnings after the final bell on August 2.

PIP – PharmAthene, Inc. – Shares in the Annapolis, MD-based biotechnology company fell as much as 4.0% today to an intraday and new 6-month low of $2.65. PharmAthene’s shares dropped rapidly since the end of May, declining 34.2% in the past three weeks alone, and a total of 46.6% off its 52-week high of $4.96 set back in October. The stock popped up on our ‘hot by options volume’ market scanner due to heavier than usual activity in calls. It looks like one contrarian strategist may be employing a debit call spread in order to position for PIP’s shares to rebound sharply ahead of September expiration. Approximately 1,900 calls appear to have been purchased at the September $5.0 strike for an average premium of $0.40 each, while roughly the same number of calls sold at the higher September $7.5 strike at an average premium of $0.10 apiece. Net premium paid for the spread amounts to $0.30 per contract, thus positioning the trader to make money should shares in the biotech company double in value at expiration. Maximum potential profits of $2.20 per contract are available to the call spreader if shares in PharmAthene jump 183.0% to trade above $7.50 at expiration in September. The stock has not traded above $7.50 in at least 5 years. PIP is scheduled to report earnings for the second quarter on August 11, well ahead of the September 16 expiration date on the call options.

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.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.