Option Activity Alert: BZH, CPB, EMR, RENN

BZH – Beazer Homes USA, Inc. – Shares in the designer and builder of single- and multi-family homes increased as much as 5.7% today to $3.53, joining other homebuilding companies in a sector rally ahead of May new home sales data due out on Thursday morning. One options player populating Beazer Homes this afternoon constructed what appears to be a long-term bullish bet on the stock. It looks like the investor sold 3,000 puts at the January 2012 $3.0 strike for a premium of $0.42 each in order to purchase 3,000 calls up at the February 2012 $4.0 strike at a premium of $0.52 apiece. Net premium paid to get long the calls amounts to $0.10 per contract and positions the trader to make money should Beazer’s shares surge 16.15% over today’s high of $3.53 to surpass the effective breakeven price of $4.10 at February expiration. Shares in BZH last traded above $4.10 on June 1. The stock is currently down more than 43% off its January 14th 52-week high of $6.23. Beazer Homes USA reports third-quarter earnings before the market opens on August 2.

CPB – Campbell Soup Co. – Demand for put options on the food products manufacturer jumped this morning after analysts at Goldman Sachs reportedly recommended buying July $33 strike puts on the chicken noodle soup maker ahead of the company’s analyst day. The sharp increase in put activity on the stock sent Campbell’s overall reading of options implied volatility up 34.4% to 16.55% by 12:05pm in New York. Shares in CPB currently trade 0.60% lower on the day at $34.01. The July $33 strike put is by far the most active this afternoon, with more than 7,400 puts having changed hands against previously existing open interest of just 576 contracts. It looks like most of the puts were purchased for an average premium of $0.23 a-pop early in the trading session. Demand for the options, the slight decline in the price of the underlying, and the sharp rise in implied volatility today sent premium on the July $33 strike puts skyward. Investors arriving late to the put party face a steep asking price of $0.40 per contract as of 12:20pm. Early-movers paying $0.23 per contract for the put options profit at expiration if shares in Campbell Soup Co. decline 3.6% from the current price of $34.01 to breach the average breakeven point on the downside at $32.77. Buyers of the puts at $0.23 per contract could take profits ahead of expiration if shares in CPB slide lower or implied volatility climbs higher.

EMR – Emerson Electric Co. – Options traders breakfasted on Emerson Electric call options this morning, suggesting shares in the technology company may be set for a near-term rally. Shares are turned positive earlier in the session, but currently trade 0.50% lower on the day at $53.65 just before 12:30pm. Bullish players honed in on the July $55 strike call today, but open interest patterns at that strike indicate the contracts were popular on Monday, as well. Traders populating Emerson Electric on Monday appear to have purchased roughly 2,000 of the July $55 strike calls for an average premium of $0.45 apiece. Early-birds paid significantly less, on average, than investors picking up the same contracts today. More than 5,600 July $55 strike calls changed hands so far today, and it looks like nearly all of the calls were purchased at an average premium of $0.64 each. Investors long the calls at $0.64 a-pop make money if shares in Emerson add 3.7% to trade above the average breakeven price of $55.64 at July expiration. July contract call options will have long since expired by the time Emerson reports third-quarter earnings ahead of the opening bell on August 2.

RENN – Renren Inc. – Shares in the Chinese social-networking site are off their highs of the session and currently trade 0.30% higher on the day at $7.23 just after 1:00pm. A put spread initiated in the front month within the first ten minutes of the opening bell caught our eye this morning. It looks like the trader responsible for the transaction is selling a 2,000-lot July $6.0/$8.0 put spread for a net premium of $0.80 per contract. Open interest at each strike is sufficient to cover each leg of the trade, which suggests the investor could be adjusting or closing out a previously established position on the stock. However, open interest patterns did not reveal any single-block trades of comparable size and the spread may be an opening rather than a closing sale. If the trade is a credit spread, the investor pockets the $0.80 net credit on the transaction and keeps the full amount as long as shares in Renren rally and exceed $8.00 at expiration in July. The purchase of the lower strike put caps potential losses on the position at $1.20 per contract in the event that Renren’s shares plunge 17.0% to trade below $6.00 at expiration next month. Maximum potential profits are limited to the $0.80 per contract received on the spread. Alternatively, the trader could be rolling long puts down a couple of strikes, which changes the interpretation of the trade from bullish to bearish.

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.