Option Activity Alert: GES, GT, WCRX, NWL

GES – Guess, Inc. – Call options on the apparel retailer are on trend with bullish players positioning for shares in Guess to rally substantially by September expiration. September contract options, which are by far the most actively traded on GES this morning, expire after the company’s August 25 second-quarter earnings report. Shares in the designer of contemporary apparel and accessories are currently down 0.75% to stand at $40.91 just after 11:50 am ET. The largest single transaction in GES options was initiated at the September $44 strike, where some 10,000 calls were purchased for an average premium of $1.45 each against paltry previously existing open interest of 314 contracts. The call buyer profits at expiration if the price of the underlying jumps 11.1% over the current price of $40.91 to surpass the effective breakeven point at $45.45. GES shares last traded above $45.45 in March. Bullish players also snapped up more than 100 calls at the September $45 and $48 strikes for premiums of $1.17 and $0.57 per contract. Meanwhile, investors anticipating bearish movement in the price of the underlying looked to the September $41 strike to pick up around 1,500 in-the-money puts at an average premium of $2.70 apiece. Put buyers profit if shares in the apparel producer drop 6.4% in the next couple of months to trade beneath the average breakeven price of $38.30 at expiration in September. Options implied volatility on Guess, Inc. rose 7.0% to 35.92% in early-afternoon trade.

GT – Goodyear Tire & Rubber Co. – Investors itching for a near-term rally in Goodyear Tire & Rubber Co. shares appear to be hoarding August contract call options. Shares in the manufacturer of tires and rubber products increased as much as 3.8% in the first half of the session to secure an intraday high of $17.42. GT earlier said it has closed a tire manufacturing facility in Union City, TN, which the company had previously estimated may take until the end of the year to close. Traders initiating bullish stances on Goodyear may be looking for a positive earnings surprise when the company reveals its performance for the second quarter on July 28. Investors picked up 2,000 in-the-money calls at the August $17 strike for an average premium of $1.15 each, but trading traffic was heaviest up at the August $18 strike. It looks like investors purchased more than 10,200 calls at the August $18 strike for an average premium of $0.65 a-pop. Call volume at both strikes exceeds the number of previously existing open positions, suggesting traders are buying to open. Investors long the August $18 strike calls make money if shares in the tire maker surge 7.1% in the next six weeks to surpass the effective breakeven price of $18.65 at expiration.

WCRX – Warner Chilcott PLC – Shares in the pharmaceutical company are off their lows of the session, but remain 0.40% in the red this afternoon to stand at $23.92 as of 12:30 pm in New York. The stock attracted the attention of bearish options players seen taking an interest in near-term puts. It looks like one trader is responsible for the bulk of the volume generated in the July contract. The investor appears to have purchased 2,500 now in-the-money puts at the July $24 strike for an average premium of $0.45 each. Put volume trumps open interest of just 182 contracts at that strike. The put buyer profits if shares in WCRX decline another 1.5% to breach the effective breakeven price of $23.55 by expiration on Friday. Shares in Warner Chilcott rose 11.95% in the most recent four weeks to reach a one-month high of $24.63 last Friday. The price of the underlying has declined 3.3% since then, and it looks like July contract put buyers expect the trend to continue through the end of the week.

NWL – Newell Rubbermaid, Inc. – Options on the consumer products company suggest the price of the underlying shares may rebound by expiration next month. Bullish players appear to be taking advantage of the recent dip in Newell Rubbermaid shares by purchasing out-of-the-money call options in the August contract. Calls expiring in August also provide exposure to NWL’s second-quarter earnings report, which is scheduled to hit the airwaves on July 29. Shares in the marketer of a portfolio of well-known brands including Sharpie® and Graco® had been in recovery mode in June following a steep 18.0% drop in the first couple of days of the month. The stock bounced back up to $16.27 on July 1, up from a June 6 one-year low of $14.14. Shares are currently trading 0.30% lower on the session at $15.45 as of 1:05 pm on the East Coast. Bulls expecting the stock to return to rally-mode picked up more than 1,400 calls at the August $17 strike for an average premium of $0.20 each. Investors long the calls profit if shares in NWL jump 11.3% in the next six weeks to exceed the effective breakeven price of $17.20 at August expiration day. Newell Rubbermaid’s overall reading of options implied volatility increased 9.6% this afternoon to 34.84%.

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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