Option Activity Alert: FDX, RRD, GCI, TLAB

FDX – FedEx Corp. – Sizable prints in call and put options on the provider of a range of shipping, transportation and business support services suggests one investor expects shares in FedEx Corp. to rebound substantially by October expiration. The stock today trades 0.50% lower on the session at $75.75 as of 12:00 pm on the East Coast. July and August were tough months to be long shares in Fedex, which fell nearly 28.0% from a 52-week high of $98.66 on July 7, down to a 52-week low of $71.33 on Tuesday. The three-legged options play could be a sign the investor expects monetary policy from the Fed to send shares higher, or perhaps for President Obama’s much-anticipated speech on jobs to inject some optimism into the market. Looking at a 2-year chart of FDX shares, it looks like the stock fell off a cliff in April 2010, bottoming out in July of last year, and ultimately spiking higher on the heels of Bernanke’s announcement of QE2. If the Fed ends up coming to the rescue, and markets believe the proposed actions will work, shares in FedEx could behave as they did around this time last year. The stock gained around 25.0% following the 2010 Economic Symposium in Jackson Hole, Wyoming, to top $98.00 a share in 2011. Speculation on possible Fed action aside, investors will surely be listening to Obama’s speech this evening to see if he says anything they don’t already expect to hear.

The trader appears to have sold around 5,000 puts at the October $67.5 strike, in order to purchase the October $77.5/$82.5 call spread 5,000 times, all for an average net premium of just $0.52 per contract. The transaction positions the trader to make money should FedEx’s shares rally 3.0% to exceed the average breakeven price of $78.02 by expiration day next month. Maximum potential profits of $4.48 per contract are available to the options strategist in the event that shares in FDX jump 8.9% in the next six weeks to October expiration. Of course, if shares fail to perform as the spread predicts, the investor may lose the full $0.52 premium paid to initiate the transaction. The short put options oblige the trader to take delivery of FDX shares should the stock continue to pullback in the weeks ahead, and the Oct. $67.5 strike puts land in-the-money at expiration. Aside from key speeches by Bernanke and Obama and the upcoming FOMC meeting this month, the bullish trade may be a directional play on the stock ahead of the company’s first-quarter earnings report on September 22.

RRD – R.R. Donnelley & Sons Co. – Options on the provider of business support products and services are more active than usual this morning, and it looks like some strategists are positioning for shares in R.R. Donnelley & Sons Co. to struggle over the next year and four months. More than 6,200 contracts have changed hands on the stock as of 11:20 am in New York. Trading traffic is centered almost exclusively in RRD puts, which sent the put-to-call ratio for the morning up to 65.1. Shares in the Chicago, Illinois-based company are currently up 0.20% to stand at $14.49. Fresh interest is building in deep out-of-the-money put options that expire in January 2013. Investors appear to have traded more than 3,900 puts at the Jan. 2013 $10 strike against previously existing open interest of just 24 contracts. Most of the puts were purchased for an average premium of $1.25 apiece, indicating buyers of the options profit in the event that RRD’s shares plunge 39.6% to breach the average breakeven price of $8.75 by expiration day in 2013. Bearish movement in the price of the underlying leading up to expiration may lift premium on the options and allow put buyers to sell-to-close their positions at an advantageous price. In-the-money put buying was evident up at the Jan. 2013 $15 strike, where some 2,000 contracts appear to have been purchased for an average premium of $3.55 each. Open interest at this strike stands at 2,025 contracts, leaving open the possibility that some of today’s trading in the contracts could be adjustments to open positions. If traders are buying-to-open long puts, they stand prepared to make money at expiration should shares in RRD drop 21.0% to trade below the average breakeven point on the downside at $11.45.

GCI – Gannett Co., Inc. – The international news and media company’s shares may post big gains in the months leading up to 2012, according to one buyer of Gannett Co. call options this morning. Shares in the McLean, Virginia-based company fell 3.6% to $10.17 in early-afternoon trade. The stock currently trades at a more than 46.0% discount to the February 7, 2011, 52-week high of $18.93. The bullish player expecting shares to rebound in the next five months picked up more than 2,500 calls at the Jan. 2012 $12.5 strike for an average premium of $0.48 a-pop. The calls position the investor to profit should shares in GCI jump 27.6% over the current price of $10.17 to surpass the average breakeven point on the upside at $12.98 by expiration day in January 2012. Gannett’s shares last traded upwards of $12.98 back on July 28. Options implied volatility on the media company rose 4.6% to 59.05% by 1:15 pm ET.

TLAB – Tellabs, Inc. – The telecommunication equipment provider popped up on our ‘hot by options volume’ market scanner after one bullish investor snapped up a large number of December contract calls. Shares in Tellabs increased 3.2% today to as high as $4.14. The company presented at Citi’s 18th Annual Global Technology Conference in New York City on Wednesday. The options strategist appears to have purchased around 6,500 in-the-money calls at the December $4.0 strike for a premium of $0.30 per contract. The trader makes money at December expiration if TLAB’s shares increase at least 3.9% to exceed the effective breakeven price of $4.30. Shares in the networking equipment provider last closed above $4.30 back on July 26. The stock has roughly halved in value since reaching a 52-week high of $8.08 in October 2010.

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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