Option Activity Alert: CX, HTS, HLF

CX – Cemex Inc. ADR – A lousy U.S. GDP report did little to arouse hopes that the consumer was overcoming the economic malaise, let alone lending a hand to the homebuilding sector. Shares in Cemex, the leading maker of cement across all of the Americas, have been struggling under the burden of a rising debt burden for two-years in hopes of a hint of strengthening revenues resulting from the U.S. market. Understandably the shares responded today by reaching a fresh 52-week low. Put activity was active on Cemex options but it appears that one investor continues to expect that the share price is approaching a floor at around $7.00. While shares reached as low as $6.58 one options writer sold another basket of 10,000 put options at the $7.00 strike indicating he’d be happy to take delivery at that price come expiration in September. The fair price of 44 cents per contract reflects the risk of doing so. Options positions built at the strike yesterday and appeared to be the work of similar selling. September calls at the same strike were also bought 2,500 times at an average price of 39 cents. Option implied volatility, which reached its highest peak in four months on Thursday started to decline as the shares recovered towards $7.00 on Friday.

HTS – Hatteras Financial Corp. – Fears very much in the foreground for the treasury market continued to weigh on REITs on Friday. Hatteras Financial was one of several companies whose share price slid over fears that disruption to the government bond market might be magnified in the repo-market for government sponsored entities, where such companies find day-to-day funding. The recent rise in the cost of borrowing in the repo-market merely reflects elevated investor concerns but according to executives within the industry, has nothing to do with day-to-day business. Efforts to soothe investors nerves fell by the wayside as shares in Hatteras broke violently from a narrow range typical of an income-generating REIT sliding to $23.86 for a 52-week low. However, some options players seem to either agree with management or at the least would be happy taking stock on board should the slide persist. Although there were signs of accelerating pessimism with buyers of put options on the company expiring August at the $20 and $22.50 strikes, there was also key activity at the $25 and $26 strikes where the bulk of put options appear to have been written as implied volatility doubled from 15% to 30% on Friday. A 60-cent rise to 65-cents in August-expiration $26 strike put premiums leaves the seller at risk of having to buy the stock in three weeks’ time at a breakeven rate of $25.35.

HLF – Herbalife Ltd. – A bullish call spread on Herbalife indicates one investor places little weight on today’s slide in the company’s fortunes today that drove its share price to the lowest in five weeks. One investor attempted to catch the falling knife after the shares slid by more than $3.00 or 6% to $53.00 at the day’s worst buying the August 57.5/60 call spread. The nutritional-supplement and provider of personal care products has been on a tear of late putting in a 52-week high at $60.99 on July 7. Today’s bullish bet has one investor baking on a rebound before long hopeful at best of a $1.32 per contract gain should the share price overtake the recent peak.

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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