HD – Home Depot, Inc. – The home improvement retailer’s shares have been on fire during the most recent six month period, with the stock last week soaring to $45.50 – the highest level in nearly a decade – on the heels of a more than 55.0% rally since August. A sizable ratio put spread initiated on Home Depot this morning may be the work of an investor hedging a long position in the shares, or, alternatively, an outright bearish stance looking for shares to pull back somewhat ahead of May expiration. Home Depot was cut to ‘Hold’ from ‘Buy’ at Edward Jones over the weekend and shares in the name today trade 0.95% lower on the session at $44.09 just before 12:00 p.m. in New York. It looks like the put player purchased around 2,500 puts at the May $42 strike for an average premium of $1.54 each and sold 5,000 puts at the lower May $38 strike at an average premium of $0.72 apiece. Average net premium paid to initiate the ratio spread amounts to $0.10 per contract, thus implying profits or downside protection kick in if shares in HD decline 5.0% to breach the effective breakeven point on the downside at $41.90. Maximum potential profits of $3.90 per contract are available on the position if the price of the underlying drops 13.8% from the current price of $44.09 to settle at $38.00 at expiration. The sale of twice as many of the lower-strike put options greatly reduces the cost of downside protection, which may insulate a longer-term HD optimist from losses in the stock’s value given the potential for a broad market correction or disappointing company-specific news to weigh on the shares ahead of May expiration. Home Depot is scheduled to report fourth-quarter earnings ahead of the opening bell on February 21.
SBUX – Starbucks Corp. – The specialty coffee retailer’s shares hit new all-time highs last week, but surrendered some of those gains today, slipping 2.0% to $47.19 by 12:40 p.m. At least one options strategist is eyeing the possibility of further near-term declines in the stock, buying what appears to be a bear put spread in the front month. The maker of Frappuccinos, Skinny Mochas and Tazo Chai Tea Lattes reports first-quarter earnings after the final bell on Thursday. Options players picked up roughly 1,500 puts at the Feb. $48 strike and sold around the same number of puts at the lower Feb. $44 strike, all for an average net premium outlay of $1.09 per contract. Profits or downside protection kicks in if shares in Starbucks decline 0.60% to breach the average breakeven price of $46.91 at expiration. Maximum potential profits of $2.91 per contract are available on the position should shares in SBUX plunge 6.8% to trade below $44.00 at expiration day next month.
LVS – Las Vegas Sands Corp. – Shares in the owner and operator of resort hotel casinos rallied more than 3.3% to $48.02 this morning after the stock was rated new ‘Buy’ with a 12-month share price target of $60.00 at Topeka Capital Markets. The stock may also be moving higher today after a gaming analyst noted shareholders could potentially receive a special dividend of $0.25 to $0.50 a share given a recent disclosure from Sands China regarding a special dividend. Investors betting shares in LVS will extend gains this week appear to be picking up in- and out-of-the-money weekly call options. The Jan. ’27 $48 strike calls saw the most volume, with more than 4,500 contracts changing hands at that strike by 1:20 p.m. in New York. The majority of these calls were likely purchased for an average premium of $0.53 apiece, positioning buyers of the options to profit in the event that shares in LVS climb another 2.3% over the current price of $47.43 to exceed the average breakeven price of $48.53 by expiration day. Options traders are exchanging nearly two call options on the casino operator today for each single put in play on the stock. The weekly call options expire ahead of Las Vegas Sands Corp.’s fourth-quarter earnings announcement next Thursday.
NRG – NRG Energy, Inc. – A spate of call buying on the power generation company minutes into the first trading session of the week suggests some options traders may be positioning for shares in NRG Energy to continue to rebound over the next two months. Shares in NRG are up 4.5% at $16.88 in early-afternoon trade on heavy volume, but the gains are relatively tiny against the backdrop of the stock’s nearly 35.0% descent from a July 25, 2011, 52-week high of $25.66. Call buyers populating NRG Energy may be snapping up bullish options on the Princeton, New Jersey-based Company ahead of its fourth-quarter earnings release on February 22. Call volume is heaviest at the Mar. $17 strike, where more than 2,600 contracts changed hands against open interest of 97 positions. The single largest trade in NRG options today was the purchase of a block of 2,400 of the Mar. $17 calls at a premium of $0.65 each. The position may be profitable at expiration should NRG’s shares rally another 4.6% to exceed the effective breakeven price of $17.65. Finally, investors buying around 1,100 calls up at the Mar. $18 strike for an average premium of $0.40 per contract could profit in the event of an additional 9.0% move higher in the stock to surpass $18.40 at February expiration.