Option Activity Alert: GM, BCSI, DSX, GME

GM – General Motors Co. – A couple of bullish bets in options covering automobile manufacturer, General Motors, may prove prudent investments for some strategists should shares in GM increase approximately 15.0% by January expiration. Shares in the Detroit, MI-based company are on the rise in early-afternoon trade, standing 0.45% higher on the session at $26.54 as of 12:10 pm in New York. It looks like options players initiated two ratio call spreads this morning. The larger of the transactions involved the purchase of 3,602 calls at the Jan. 2012 $26 strike at a premium of $2.82 each, against the sale of 7,204 calls up at the Jan. 2012 $30 strike for a premium of $1.22 apiece. Net premium paid for the spread amounts to $0.38 per contract, thus positioning the trader to make money should shares in the automaker exceed the effective breakeven price of $26.38 at expiration in January. The investor could rake in maximum potential profits of $3.62 per contract in the event that shares in GM rally 13.0% to settle at $30.00 at expiration next year. Meanwhile, the smaller and more optimistic of the trades engaged the purchase of 1,000 Jan. 2012 $27 strike calls for an average premium of $2.37 each, and the sale of twice as many of the Jan. 2012 $31 strike contracts at an average premium of $0.97 a-pop. The net cost of the spread amounts to $0.43 apiece, and therefore an average breakeven share price of $31.43. Maximum potential profits of $3.57 per contract are available on the trade should shares in the car maker surge 16.8% to settle at $31.00 at expiration day. Shares in GM last traded above $31.00 back in mid-July.

BCSI – Blue Coat Systems, Inc. – Call options on Blue Coat Systems are active ahead of the company’s first-quarter earnings report due out after the final bell on Thursday. Shares in the provider of Web security and WAN optimization solutions are up 1.2% this afternoon to arrive at $18.15 as of 12:25 pm ET. Fresh positioning in August contract calls suggests some options strategists are gearing up for a post-earnings pop in the price of the underlying come expiration Friday. Traders snapped up some 1,600 calls at the August $19 strike for an average premium of $0.29 apiece. Call buyers profit if shares in Blue Coat increase 6.3% to exceed the average breakeven price of $19.29. Meanwhile, trading traffic in BCSI calls is heaviest up at the August $20 strike where more than 2,100 calls changed hands against open interest of 262 contracts. It looks like most of the call options were purchased at an average premium of $0.16 a-pop. Traders long the higher-strike calls profit in the event that Blue Coat’s shares jump 11.1% to surpass the average breakeven price of $20.16 at expiration in a few days. Options implied volatility on Blue Coat rose 4.0% to 68.60% in early-afternoon trade.

DSX – Diana Shipping, Inc. – The first eight months of 2011 have been tough on shares in Diana Shipping, with the price of the underlying stock having lost roughly 40% of its value since the start of the year. Shares in the provider of shipping transportation services turned positive momentarily this morning, but currently stand 0.50% lower on the session at $8.17 as of 11:20 am ET. Activity in December contract put options suggests one strategist sees shares in Diana Shipping holding above $8.00 through the end of the 2011. It looks like the investor sold around 1,400 puts at the December $8.0 strike at a premium of $0.75 apiece, against previously existing open interest of just 79 contracts. The trader walks away with the full $0.75 premium received on the sale as long as shares in DSX exceed $8.00 through expiration day in December. The investor may have shares of the underlying put to him at an effective price of $7.25 each should the puts land in-the-money at expiration. Time erosion as well as subsiding levels of implied volatility on the stock should work in favor of the put seller, although sharp bearish movement in Diana’s share price could eclipse those benefits in the next four months to expiration.

GME – GameStop Corp. – Bearish activity in GameStop options indicates some traders are bracing for shares in the videogame retailer to slip following the company’s second-quarter earnings report ahead of the opening bell on Thursday. GME’s shares are up this afternoon, trading 0.75% higher on the session at $21.11 just before 12:40 pm on the East Coast. The heaviest volume in GameStop options centers in out-of-the-money puts expiring on Friday. It looks like one or more strategists purchased the 1,500-lot August $19/$20 put spread at a net cost of $0.20 in premium per contract. Put-spreaders profit if shares in GME drop 6.2% from the current price of $21.11 to breach the average breakeven point on the downside at $19.80 at expiration. Maximum potential profits of $0.80 per contract are available on the spread in the event that shares in the specialty retailer plunge 10.0% to trade below $19.00 by August expiration at the end of the week. Meantime, traders eyeing puts with a bit more time left to expiration purchased more than 330 contracts at the September $18 strike for an average premium of $0.32 per contract. Investors long the puts profit if shares in GME hemorrhage 16.25% of their current value to trade beneath the average breakeven price of $17.68 at September expiration. On the flip side, traders itching for shares to extend gains scooped up 200 in-the-money calls at the September $21 strike for a premium of $1.04 each. Call buyers are looking for shares to at least top $22.04 by expiration next month. Options implied volatility on the retailer inched 4.6% higher this afternoon to 45.99%.

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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