Options Activity Alert: GILD, SPLS, ODP

GILD – Gilead Sciences, Inc. – Bullish activity in the biotechnology company’s options jumped and shares in Gilead Sciences moved up more than 2.0% to $46.18 the same day the drug maker presented at the 2012 RBC Capital Markets’ Healthcare Conference in New York. Positive comments from management along with the impending April 19th first-quarter earnings report from the Company could be catalysts for the sizable bull call spreads accumulating in the April expiry. It looks like one investor purchased a roughly 15,000-lot April $47/$50 call spread for a net premium of $1.13 per contract to position for shares to extend gains during the next couple of months. Profits may be available on the spread in the event that Gilead’s shares rally another 4.2% to surpass the average breakeven price of $48.13, while maximum possible profits of $1.87 per contract pad the investor’s wallet should the stock surge 8.3% to top $50.00 at expiration. Gilead’s shares had realized year-to-date gains of 35.0% earlier this month after the Company’s better-than-expected fourth-quarter earnings report sent the stock up as high as $56.50 on the 6th of February. The stock subsequently came back down with a thud shortly after reaching its highest level since 2008, but the options trader responsible for the call activity this morning is poised to benefit should the stock regain its footing in the near term.

SPLS – Staples, Inc. – Shares in the office supplies retailer rallied 4.7% to $15.95 in sympathy with competitor, Office Depot, Inc., which opened sharply higher on better-than-expected fourth-quarter earnings released ahead of the opening bell this morning. Staples is scheduled to reveal its fourth-quarter performance before U.S. markets open on Wednesday, and it looks like options traders are positioning for the upward move in the shares to continue. Front month calls are most active at the Mar. $16 strike, where it appears 2,400 contracts were purchased for an average premium of $0.44 each. Fresh interest in the April $17 strike calls was largely generated by buyers snapping up some 920 contracts at a premium of $0.25 apiece. Investors long the $17 strike calls profit at expiration if shares in Staples surge 8.2% to settle above the effective breakeven price of $17.25. Longer-dated positioning also appears to be the work of traders eyeing upside potential in the retail chain. June $17 and $18 strike calls were purchased around 2,100 and 1,200 times for average premiums of $0.51 and $0.25 per contract, respectively, within minutes of the opening bell today. More than 16,000 contracts have changed hands on Staples this morning, with roughly three calls in play on the stock to each single put option.

ODP – Office Depot, Inc. – The Boca Raton, Florida-based office supplies retailer’s fourth-quarter earnings report topped analyst estimates and sent shares in ODP flying to the upside. Shares are now at a six-month high, and the largest trade in ODP options this morning suggests the stock has made its move for now, and will likely remain range-bound over the next couple of months. Office Depot’s shares are currently up 15.9% at $3.50 as of 11:35 a.m. in New York. It looks like the options player sold a 2,500-lot straddle at the April $3.5 strike to pocket total premium of $0.60 per contract. The trader walks away with the full amount of premium at expiration as long as shares in Office Depot settle at $3.50. Premium received on the straddle acts as a buffer against potential losses on the position given limited fluctuations in the price of the underlying away from the $3.50 level. However, the trader could realize losses in the event that Office Depot’s shares rally above the upper breakeven price at $4.10 or slip beneath the lower breakeven point of $2.90, at April expiration. Shares in ODP have enjoyed a monster rally in 2012, up better than 60.0% year-to-date. The straddle-strategist may keep some if not all of the premium enjoyed on the transaction as long as the stock can hang onto the 2012 gains.

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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