Option Activity Alert: RL, OSK, SPLS, RAX

RL – Ralph Lauren Corp. – The designer of premium-brand lifestyle products ranging from men’s and women’s fashion to fragrances and home furnishings popped up on our ‘hot by options volume’ market scanner after one investor traded a large chunk of deep out-of-the-money October contract call options. Shares in Ralph Lauren Corp. fell 2.0% earlier in the session to $135.69, but recovered in early-afternoon trade to stand roughly flat on the session at $138.82 as of 12:20 pm ET. The stock currently trades a few dollars below its July 21 all-time high of $141.37. The strategist responsible for nearly all of the options volume on Ralph Lauren today appears to be taking the view that the price of the underlying shares are unlikely to soar above $155.00 within the next five weeks to October expiration. More than 9,900 call options changed hands at the October $155 strike against paltry previously existing open interest of just 372 contracts. One block of 9,075 of those calls were sold by one investor at a premium of $1.70 a-pop within the first hour of the trading session. The trader selling the calls keeps the full amount of premium received on the transaction as long as shares in Ralph Lauren fail to exceed $155.00 come expiration day. The investor may be selling the calls outright, or could be writing the options against an existing long position in the underlying shares. In the naked short scenario, the strategist may accrue losses on the position in the event that RL’s shares jump 12.9% over the current price of $138.82 to surpass the effective breakeven price of $156.70. Options implied volatility on the stock dropped 5.05% this afternoon to 46.3%. Ralph Lauren reports second-quarter earnings on November 9, 2011, well after October options expiration.

OSK – Oshkosh Corp. – Call options on Oshkosh Corp. are buzzing with activity today, with shares in the manufacturer of defense trucks and emergency vehicles rising as much as 8.1% by 12:45 pm ET to $19.64. Shares in Oshkosh have been hard-hit this year, but traders dabbling in September and October contract calls appear to be bullish on the prospects for a near-term rebound in the price of the underlying. The stock slumped to a 52-week low of $15.85 in August, having tumbled 60.5% off its 52-week peak of $40.11 set back in February. Shares today trade 23.9% higher than their lowest point of August, and call buyers populating the stock today are prepared to benefit should the rebound gain steam in the days and weeks ahead. Oshkosh was raised to ‘Neutral’ from ‘Reduce’ at SunTrust Robinson earlier in the week. Investors initiating immediate term bullish positions on OSK targeted in-the-money call options that expire at the end of the week. More than 1,500 calls changed hands at the September $19 strike against open interest of 466 contracts. It looks like the majority of the calls were purchased for an average premium of $0.47 apiece. Buyers of the call options profit if shares in Oshkosh Corp. exceed the average breakeven price of $19.47 at expiration. Meanwhile, in- and out-of-the-money calls were most actively traded in the October contract. Buyers outnumbered sellers driving volume in the October $18 and $20 strike call options, but trading in the $21 and $22 strike calls appears to be populated in roughly equal numbers with buyers and sellers. Trading traffic is heaviest in the Oct. $22 strike call where some 2,000 contracts changed hands at an average premium of $0.58 apiece. Buyers of the contracts profit if shares in OSK surge 15.0% to trade above the average breakeven price of $22.58 by expiration next month. Conversely, sellers of the options walk away with the $0.58 in premium per contract as long as the calls expire worthless in October. Increased demand for Oshkosh calls helped lift the stock’s overall reading of options implied volatility 6.8% to 70.7% by 1:10 pm in New York. The company is scheduled to participate in the Longbow Research Industrial Manufacturing & Technology Investor Conference in New York tomorrow.

SPLS – Staples, Inc. – Sizable prints in long-dated call options on Staples, Inc. suggests some options players are prepared to see shares in the office supplies retailer appreciate by January 2013 expiration. Shares in Staples are up 2.4% in early-afternoon trade to stand at $14.43. The company on Tuesday announced its board approved a new $1.5 billion share buyback program and a third-quarter dividend of $0.10 a share. Trading traffic in Staples call options is heaviest at the Jan. 2013 $15 strike, where more than 13,350 contracts changed hands against open interest of 4,852 positions. It looks like the vast majority of the calls were purchased for an average premium of $2.31 apiece. Buyers of the calls make money if shares in SPLS rally 20.0% over the current price of $14.43 to surpass the average breakeven point on the upside at $17.31 by expiration day in more than a year. The office products provider last traded above $17.31 in May 2011.

RAX – Rackspace Hosting, Inc. – Fresh interest in put options on the provider of hosting and cloud computing services this morning may be a sign some traders expect shares in Rackspace Hosting to pull back in the five weeks remaining to October expiration. Shares in RAX are currently up 1.8% to stand at $36.78 as of 1:30 pm ET. The company is scheduled to present at the Goldman Sachs Communacopia Conference in New York on September 21. Options volume on Rackspace today is greatest at the October $34 strike, where some 2,830 puts changed hands against previously existing open interest of 105 contracts. It looks like slightly more of the puts traded on the ask, suggesting the contracts were purchased at an average premium of $1.78 apiece. Investors buying the calls make money at expiration should shares in Rackspace Hosting fall 12.4% to breach the average breakeven point to the downside at $32.22. Shares in RAX dipped below $32.22 as recently as August 22.

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.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.