Option Activity Alert: PEP, MPC, HWD, PWR

PEP – PepsiCo, Inc. – The global food and beverage company saw heavy call action on Wednesday after the New York Post reported that the company’s board is divided on the subject of possibly splitting up the company, and that PepsiCo CEO, Indra Nooyi, may be close to making two large international acquisitions. PEP shares are up 2.0% at $65.79 as of 12:05 PM ET. Notable bullish interest is building in the Dec. $67.5 strike call, where is appears a number of strategists are positioning for shares in Pepsi to continue to climb. Investors exchanged more than 11,600 calls at the Dec. $67.5 strike against open interest of 4,317 contracts. Traders appear to have purchased the majority of the calls for an average premium of $0.51 apiece. Call buyers stand prepared to profit should shares in PepsiCo rally another 3.4% to surpass the average breakeven point on the upside at $68.01 by expiration day next month. Shares in PEP last traded above $68.01 back on July 20.

MPC – Marathon Petroleum Corp. – Shares in the largest Midwest oil refiner dropped like rock Wednesday morning, but it looks like the sharp decline today comes as no surprise to some options strategists who appear to have snapped up puts on Marathon Petroleum Corp. earlier this week. Refiners’ shares retreated as the spread between WTI and Brent oil narrowed, a sign that profit margins at these companies may decline. Marathon’s shares are off their lows of the session but remain deeply in the red, down 6.7% at $34.52 as of 11:30 AM in New York. Investors prepared to profit from Marathon Petroleum’s pain purchased put options on Monday and Tuesday for a fraction of their cost today. It looks like traders picked up roughly 3,500 puts at the Nov. $37.5 strike for an average premium of $1.60 this week, as well as purchased more than 3,000 puts at the lower Nov. $35 strike at an average premium of $0.67 a-pop. Today, premium required to buy downside protection is substantially higher. The Nov. $37.5 strike puts currently cost $3.70 per contract, while the Nov. $35 strike puts cost $1.05 each. Put selling initiated at both of these strikes in the first hour of the trading session this morning suggests traders may be taking quick profits off the table.

HWD – Harry Winston Diamond Corp. – One bullish options play on Harry Winston this morning may help cover gift-giving expenses for one investor this holiday shopping season as long as shares in the diamond supplier hold up through December expiration. Shares in the Toronto, Ontario-based company rallied 1.4% to $11.16 in the first half of the trading session. The stock popped up on our ‘hot by options volume’ market scanner after one trader sold 10,000 puts at the Dec. $10 strike for a premium of $0.20 apiece. The large block of puts traded is nearly three times the size of overall open interest on the stock of 3,566 contracts. Maximum potential profits of $200,000, or $0.20 per contract, remain in the investor’s wallet if shares in Harry Winston settle at or above $10.00 at expiration day. Shares in HWD had dipped to a 52-week low of $9.14 as recently as October 4. The put seller could wind up having 1 million shares of the underlying put to him at an effective price of $9.80 each, should shares retreat once more to land the options in-the-money at expiration in four weeks time. The company is scheduled to report third-quarter earnings after the final bell on December 8.

PWR – Quanta Services, Inc. – Shares in the provider of contracting services to the electric power, oil, natural gas and telecommunications industries gained 3.1% to stand at $19.79 in early-afternoon trade. The rally in Quanta Services, Inc. shares started earlier in the week, after the company said it won a contract worth more than $300 million to provide transmission infrastructure services on power lines for American Electric Power Co. Put selling on Quanta Services this morning indicates at least one options strategist expects shares in the name to rise from current levels and trade north of $20.00 by December expiration. Two blocks of 1,000 in-the-money put options each appear to have been sold at the Dec. $20 strike in the first 35 minutes of the session. The investor responsible for the trades may walk away with $1.20 in premium per contract on one block of puts, and $1.05 each on the other, as long as shares in Quanta Services rally another 1.05% to top $20.00 by expiration day next month. Some 200,000 shares of the underlying may be put to the investor at expiration, however, if shares settle below $20.00 and the put options land in-the-money.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

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