Options Activity Alert: URBN, CVC, TXT

URBN – Urban Outfitters, Inc. – Options activity on the specialty retailer jumped on Wednesday morning as news of the CEO’s resignation saw shares in Urban Outfitters tumble more than 20.0% to an intraday low of $23.42. Trading in Urban call options outpaced that of puts in the first half of the session, and it looks like a number of strategists are positioning for the price of the underlying to rebound in the near term. Investors poised to potentially benefit from a bounce in Urban’s shares scooped up more than 1,600 in-the-money calls at the Jan. $24 strike for an average premium of $0.74 each and another 1,800 calls at the Jan. $25 strike at an average premium of $0.52 apiece in the first couple of hours of the trading day. Call buyers may profit at expiration next week in the event that shares in URBN settle above the average breakeven points at $24.74 and $25.52, respectively. Similar positions were initiated out at the Feb. $25 strike, where more than 1,500 calls changed hands against open interest of just 2 contracts. Investors appear to have purchased the majority of the calls for an average premium of $0.84 apiece and may profit at expiration next month if shares in Urban Outfitters rally 6.5% over the stock’s current price of $24.27 to exceed the average breakeven point at $25.84. Meanwhile, relatively lighter put buyer action on the name indicates some traders are prepared in the event the shares extend losses. Options traders have exchanged nearly 35,000 contracts on URBN as of 12:20 PM in New York against overall open interest of 76,962 positions.

CVC – Cablevision Systems Corp. – The purchase of a large number of Cablevision Systems Corp. call options this morning may at first glance look like a bullish bet on a severely beaten-down stock on the mend. However, the strategist responsible for the trade appears to be tuning into Cablevision calls in order to hedge a short position in the underlying shares. The synthetic long put position on CVC suggests the investor expects shares in the U.S. cable operator to decline. Cablevision’s shares turned positive earlier in the session, but are back in the red, down 0.20% at $14.37, as of 1:15 PM in New York. Shares in CVC posted strong gains in the final weeks of 2011 and extended the year-end rally in the first week of 2012. As of yesterday, the stock was up 30.0% over its December 16, 2011, two-year low of $11.57. The synthetic put position, or the combination of long calls and short stock, may mean the investor sees CVC giving up some or all of those recent double-digit gains by March expiration. It looks like the trader purchased 7,000 calls at the Mar. $16 strike for a premium of $0.35 each, and sold 175,000 shares of stock at $14.077 each. The delta-hedged position is most profitable for the trader if the price of the underlying heads south this winter. Shares currently trade at a more than 60.0% discount to the February 17, 2011, 52-week high of $38.08. Cablevision Systems was removed from the Top Picks Live List at Citi this week. Fourth-quarter earnings from the New York-based company are scheduled for release ahead of the open on February 16.

TXT – Textron, Inc. – Speculation the multi-industry company may be mulling a possible spinoff sent shares and options volume in Textron up sharply this morning. Bullish call buying across multiple expiries positions some strategists to potentially profit should the stock add to today’s 6.25% rally to $21.43 in the next couple of months. Investors picked up at least 1,200 calls at both the Feb. $21 and $22 strikes this morning for average premiums of $1.52 and $1.00 each. Buyers of the Feb. $22 strike call, which has traded more than 2,000 times so far today, may profit at expiration next month if shares in Textron rally another 7.3% to surpass the average breakeven price of $23.00. Finally, a spate of call buying across different strikes in the March expiry in the first 10 minutes of the session appears to be the work of one investor. More than 500 calls were picked up at each of the Mar. $23 and $24 strikes, while another 330 calls were purchased at the higher $25 strike. The Mar. $25 strike calls cost the investor roughly $0.51 per contract, and may yield profits at expiration should Textron’s shares soar 19.0% to top $25.51. Spinoff-speculation aside, Textron is scheduled to report fourth-quarter earnings ahead of the opening bell on January 25. Buyers of call options on the name may see their positions helped or hindered depending on the stock’s performance following the earnings release two weeks from today.

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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