URBN – Urban Outfitters, Inc. – Apparel and accessories retailer Urban Outfitters popped up on our ‘hot by options volume’ market scanner due to heavy trading traffic in near-term calls. Shares in the battered stock gained 4.3% in early-afternoon trade to stand at $24.56 by 12:10 pm EDT. The price of the underlying was pummeled in 2011, nearly halving from a 52-week high of $39.26 in March down to a two-year low of $21.47 on October 4. Shares are up 14.0% off their October low, and call buyers in the October contract stand to reap the benefits of potential bullish movement in the price of the underlying during the seven trading sessions that remain to expiration. Retail sales figures due out at the end of this week may help of hinder URBN’s recovery.
Trading traffic in Urban call options is heaviest at the Oct. $26 strike call, where more than 3,100 contracts changed hands against previously existing open interest of 1,359 positions. It looks like most of the calls were purchased by one investor for an average premium of $0.15 a-pop. The trader profits at expiration in the event that UBRN’s shares surge 6.5% over the current price of $24.56 to surpass the average breakeven point on the upside at $26.15. Shares in the apparel retailer last traded above $26.15 at the beginning of September.
DB – Deutsche Bank AG – Shares in Deutsche Bank joined those of European and American banks in rallying strongly on optimism Slovakian lawmakers will ultimately ratify the rescue fund plan. DB’s shares are up 6.15% to stand at $40.54 in early-afternoon trade. Options activity on the stock, however, suggests the banking institution’s shares could turn on a dime. A debit put spread initiated in the November contract yields maximum potential profits to its owner should the price of the banking institution’s shares drop more than 25.0% by November expiration.
The trader appears to have purchased 1,000 puts at the November $40 strike for an average premium of $3.67 per contract, spread against the sale of the same number of puts at the November $30 strike at an average premium of $0.92 a-pop. Net premium paid to establish the put spread amounts to $2.75 per contract, thus positioning the investor to profit should shares in DB decline 8.1% to breach the effective breakeven point on the downside at $37.25 by expiration in November. The strategist could rake in maximum potential profits of $7.25 per contract should shares in DB plunge 26.0% to trade below $30.00 by expiration day next month.
The investor locked in downside protection on the stock relatively cheaply, given the sharp run-up in DB’s shares and the slide in implied volatility on the stock over the past week. For example, the November $30/$40 put spread would have cost roughly $5.55 per contract last Tuesday, when shares in DB opened the session at $31.25. The put player may be establishing the spread to hedge a long position in the underlying and protect recent share price gains, or could be outright bearish on the European bank in the expectation that the rally is not here to stay. Options implied volatility on the stock fell 13.0% to 69.87% by 1:00 pm EDT.
HPQ – Hewlett-Packard Co. – Traders placed near-term bullish bets on tech-giant Hewlett-Packard straight out of the gate this morning, perhaps on reports the company is reconsidering former CEO Leo Apotheker’s plan to spin off the PC unit, under the leadership of new Chief, Meg Whitman. Shares in HPQ commenced the session in rally-mode, but struggled to maintain those gains. The stock is currently flat on the session at $25.92 just after 11:30 am in New York. Investors positioning for shares in HPQ to increase through the end of the week picked up some 2,600 calls at the Oct. ’14 $26 strike for an average premium of $0.44 per contract. Optimism spread to the higher Oct. ’14 $27 strike where more than 3,200 calls changed hands against previously existing open interest of 526 contracts. It looks like most of the calls at this strike were purchased for an average premium of $0.12 a-pop. Investors long the $27 calls profit at expiration if shares in HPQ rally 4.6% over the current price of $25.92 to surpass the effective breakeven price of $27.12. The decision to purchase weekly calls on HPQ hasn’t exactly worked out for one strategist who appears to have purchased roughly 3,000 of the Oct. $26 strike call for a premium of $0.58 each on Monday. The last traded price on those contracts according to IB’s Trader Workstation lists $0.36, as of 11:45 am EDT. Monday’s call buyer could remain underwater on the position, and possibly lose the full amount of premium paid for the contracts, should shares fail to extend gains by expiration on Friday.
MCHP – Microchip Technology, Inc. – Shares in the semiconductor company are off their highs of the session at $34.69, after earlier rising as much as 1.55% to an intraday high of $34.84. Put activity on Microchip Technology suggests at least one trader sees shares resisting above $34.00 through expiration in January 2012. Some 2,195 puts changed hands at the Jan. 2012 $34.0 strike this morning against previously existing open interest of 120 contracts. It looks like most of the puts sold for an average premium of $2.50 a-pop. The investor responsible for the put selling keeps the full amount of premium received on the transaction as long as shares in MCHP exceed $34.00 through expiration day next year. The short stance in puts indicates the trader may have stock put to him at an effective price of $31.50 a share should the options land in-the-money at expiration. Microchip Technology is scheduled to report second-quarter earnings after the final bell on November 3.