Options Activity Alert: LULU, DECK, PG

DECK – Deckers Outdoor Corp. – Shares in Deckers Outdoor Corp. fell as much as 12.15% to as low as $79.25 on Friday after the Company behind footwear brands UGG and Teva said 2012 earnings will be unchanged at $5.07 a share, missing average analyst expectations of $5.80 a share. Put buying in the March expiry suggests some traders are prepping for the stock to take a few more kicks to the face in the near term. Options traders appear to have purchased more than 2,150 puts at the Mar. $75 strike for a premium of $1.50 apiece. Put buyers may profit at expiration next month in the event that Deckers Outdoor’s shares shed another 7.25% to trade below the average breakeven price of $73.50. Bearish positions are also building at the Mar. $72.5 strike, where more than 1,100 puts were picked up for an average premium of $1.00 a-pop. Front month put positioning contrasts with April expiry activity in far out-of-the-money put options. It looks like strategists betting the stock is unlikely to crash much lower ahead of April expiration sold around 6,000 puts at the $70 strike at a premium of $1.51 each, and sold another 1,900 puts at the lower $65 strike for an average premium of $0.76 apiece. Put sellers walk away with the full amount of premium received on the trades as long as DECK’s shares keep their footing above the strike prices described at April expiration.

LULU – Lululemon Athletica, Inc. – Traders appear to be bulking up on bullish Lululemon options today, with shares in the retailer of high-end athletic apparel earlier rallying to a record high of $67.57. Call buying in the March expiry this morning may be the work of strategists preparing for the price of the underlying to secure fresh all-time highs following the Company’s fourth-quarter earnings report on March 15. Call volume is heaviest at the Mar. $67.5 strike, where some 2,400 contracts changed hands against open interest of 5,041 positions. A review of open interest suggests positions previously established were largely initiated by buyers paying an average premium of $2.14 apiece at the end of January. Options traders today appear to have purchased the majority of the 2,400 calls in play at the Mar. $67.5 strike for an average premium of $2.04 each. Bulls snapping up LULU calls this morning may profit at expiration in the event that shares in the retailer rise at least 4.6% to surpass the average breakeven price of $69.54. Interest also looks to be building in the higher Mar. $72.5 strike call, where more than 700 contracts were picked up for an average premium of $0.65 per contract today.

PG – Procter & Gamble Co. – Remember the jump in weekly call buying on Procter & Gamble on Wednesday? As a brief refresher, the contracts in play – Feb. ’24 $65 strike calls – had just a couple more trading days remaining to expiration. Shares in PG at the time were hovering around $64.30 when one or more investors piled into the then out-of-the-money options to position for the consumer product maker’s shares to rally. The spate of call buying was initiated ahead of the Company’s much anticipated comments at an analyst conference on Thursday. Procter & Gamble’s shares rallied sharply Thursday on news of cost-cutting plans, and extended gains today. The stock hit an intraday high of $66.95 this morning, marking two-day gains of 3.9% over Wednesday’s closing price of $64.44. The trader or traders long the Feb. ’24 $65 strike calls paid just $0.15 per contract, on average, two days ago. These call options now cost 13 times as much, or $1.95 per contract, roughly 48 hours later.

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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