Option Activity Alert: CLX, IGT, EBAY, NVLS

CLX – Clorox Co. – Bullish options activity on the manufacturer and marketer of a range of consumer goods jumped this afternoon with shares in Clorox Company rising 5.6% to $71.94. Clorox has been the subject of takeover chatter on several occasions over the years, which in the past tended to drive up the price of the underlying as well as call volume and options implied volatility. No rumors have come to our attention today, but shares are soaring, calls are in high demand and implied volatility is up sharply by 82.6% to arrive at 25.20% by 1:55 pm ET. Options traders are piling into Clorox calls to buy into the rapid rise in the price of the underlying. Volume is heaviest at the July $70 strike where more than 4,200 now deep in-the-money calls changed hands against open interest of 2,322 contracts. Most of the calls at this strike were purchased by first-responders for an average premium of just $0.40 each. The huge run-up in volatility and rally in share price has lifted premium on the July $70 strike calls up to $1.90 each this afternoon. Bulls tacked August contract calls, as well. Traders purchased the majority of the 1,285 calls exchanged at the August $72.5 strike for an average premium of $0.44 a-pop. Investors long the calls profit in the event that shares exceed the average breakeven price of $72.94 through August expiration. Shares in Clorox Co. reached their current all-time high of $72.43 back on February 11. The maker of bleach and Burt’s Bees® personal care products reports fourth-quarter earnings ahead of the opening bell on August 3.

IGT – International Game Technology – Options on International Game Technology, which were popular with strategists positioning for shares in the maker of electronic gaming equipment to rally last week, are seeing similar bullish plays this morning. Shares in the Reno, Nevada-based company earlier rallied as much as 3.6% to an intraday high of $18.92, which is just 19 pennies below the stock’s January 14 52-week high of $19.11. Bullish options volume on IGT popped last Tuesday after large numbers of August $19 strike calls were purchased for an average premium of $0.36 each. Open interest at this strike suggests around 8,500 calls are still being held by traders. In less than one week the value of the August $19 strike calls have roughly doubled, requiring new-comers to pay $0.70 in premium for the same contract today. Investors taking to International Game Technology options this morning generated substantial volume at the July $18 strike, where more than 4,300 in-the-money calls changed hands against open interest of 2,870 contracts. It looks like most of the calls were purchased at an average premium of $0.35 each. Call buyers profit if shares in IGT exceed the average breakeven price of $18.35 through expiration on Friday. Bulls purchased calls at the August $21 and $22 strikes at average premiums of $0.21 and $0.10 apiece, respectively. Other strategists displayed optimism on the gaming stock by selling in- and out-of-the-money put options expiring in August. Traders sold more than 600 in-the-money puts at the August $20 strike to pocket an average premium of $1.72 each, while some 715 in-the-money puts sold at an average premium of $1.10 a-pop at the August $19 strike. Put sellers keep the full amount of premium received as long as the options expire worthless next month. The rise in demand for options on IGT helped lift the stock’s overall reading of options implied volatility 10.0% to 36.88% by 12:00 pm ET. Volatility peaked at 39.23% earlier in the session. The distributor of gaming equipment is scheduled to report third-quarter earnings after the final bell on July 26.

EBAY – eBay, Inc. – Shares in the provider of online marketplaces and payment solutions turned positive earlier in the session on reports eBay’s same-store sales increased for the fifth-straight month to 14.6% in June. The price of the underlying sustained the rally for a short period of time, and ultimately slipped 1.3% to $32.99 by 12:45 pm ET. Mixed trading in EBAY options suggests some traders are positioning for shares to rebound, while others anticipate further share price declines to come. Options expiring at the end of this week received interest from bullish players hoping to see the stock rally. It looks like some 5,200 calls were purchased at the July $34 strike for an average premium of $0.33 each, while another 1,800 call options were picked up at the higher July $35 strike at an average premium of $0.16 a-pop. Call buyers profit if shares in eBay reverse-course to exceed the average breakeven prices of $34.33 and $35.16, respectively, by July expiration. Call open interest at both strikes is sufficient to cover volume traded during the session, which indicates buyers may or may not be opening the positions. Meanwhile, fresh trading in August contract puts suggests the stock may extend losses through expiration next month. More than 7,000 put options changed hands at the August $31 strike against previously existing open interest of 2,293 contracts. It looks like the majority of the contracts were purchased for an average premium of $0.72 each. Buyers of the bearish options make money if shares in EBAY drop 8.2% in the next six weeks to breach the average breakeven point on the downside at $30.28 by expiration day. Traders also picked up some 1,800 puts up at the August $33 strike for an average premium of $1.38 apiece. Options implied volatility on EBAY is up 13.9% this afternoon to stand at 38.82%. Second-quarter earnings from the company are expected to hit the market next Wednesday after the final bell.

NVLS – Novellus Systems, Inc. – The manufacturer of equipment used in the production of semiconductors popped up on our scanners due to heavier than usual activity in its call options. Options are in demand ahead of the company’s second-quarter earnings report after the final bell this afternoon, driving up implied volatility on the stock 14.1% to 46.16% in early-afternoon trade. Shares in Novellus Systems increased as much as 2.75% this morning to $36.96, perhaps after analysts at Citi raised their share price target on the stock to $40.00 from $37.00. The stock currently trades just 0.25% higher on the day at $36.06 as of 1:10 pm on the East Coast. Sizable prints in near-term calls appear to be the work of an investor rolling a bullish stance on NVLS out to the next expiration month. The transaction involved the sale of around 3,500 July $38 strike calls for an average premium of $0.46 each, and the purchase of roughly the same number of calls up at the August $39 strike for an average premium of $1.00 apiece. The net cost of the roll amounts to $0.54 per contract, thus positioning the investor to profit should shares in Novellus Systems surge 7.0% over today’s high of $36.96 to surpass the average breakeven price of $39.54 by August expiration day.

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.

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