Options Activity Alert: XLB, SHFL, HNR

XLB – Materials Select Sector SPDR ETF – U.S. equities are in retreat today after data showing Europe’s economy contracted in the fourth quarter sparked global growth concerns. Shares in the XLB, an exchange-traded fund that tracks the performance of the Materials Select Sector Index, are down 2.2% this morning at $35.89, with all 30 stocks represented in the fund on the decline just before midday in New York. Materials stocks are among those getting hit hardest as the major averages slump to session lows. A large block of put options in play on the XLB may mean one strategist is prepared for the pullback to continue. The purchase of a block of 30,850 puts at the April $35 strike for a premium of $0.92 each may be an outright bearish stance that benefits from an additional 5.0% correction in the sector. In this case, the put buyer starts making money on the position if the price of the underlying pulls back beneath the effective breakeven price of $34.08 by expiration. Alternatively, the trader may be hedging a long position in the underlying shares, protecting against further bearish movement in the ETF through April expiration, while maintaining upside exposure should growth concerns abate. Shares in the ETF are still up more than 10% since mid-December, the trader could be locking in gains, hedging additional turbulence in the near term, under the view that equities will get back on track this spring.

SHFL – Shuffle Master, Inc. – The maker of gaming-entertainment products and technologies popped up on our scanners this morning with call options a-buzz following the release of better-than-expected first-quarter earnings after the close on Monday. Shares today jumped 20.0% to an intraday high of $17.49. More than 3,350 contracts have changed hands on Shuffle Master against overall open interest on the name of 5,081 positions. Most of the options in play are calls, with approximately 3.8 call options trading to each single put option in action. Fresh positioning in the front month calls suggests some traders expect the price of the underlying to extend gains. Meanwhile, a review of open interest patterns in March expiry calls indicates a few strategists were already at the table and prepared to benefit from the bullish move in Shuffle Master’s shares. One call buyer that hit the jackpot appears to have purchased up to 335 calls at the Mar. $14 strike for an average premium of $0.85 per contract back on February 7th. The move up in the shares today has tripled the value of those options, with the contracts currently showing a last-traded price of $2.90 as of 1:05 p.m. ET. Traders initiating fresh bullish stances on Shuffle Master today looked to the Mar. $16 and $17 strikes, buying some 290 and 650 calls at average premiums of $0.60 and $0.28 apiece, respectively.

HNR – Harvest Natural Resources, Inc. – Shares in the energy company are soaring today, trading up as much as 33.4% to $8.35, on news it is in talks to sell its 32.0% stake in Petrodelta SA. Options volume on the Houston, Texas-based oil producer jumped as the trading session got underway this morning, with some traders positioning for further upside in the shares. More than 900 calls changed hands at the April $10 strike for an average premium of $0.26 each against zero open positions. Call buyers stand prepared to profit at expiration next month in the event that Harvest’s shares rally another 31.0% over the current price of $7.86 to exceed the average breakeven price of $10.26. The June $10 strike calls are also active today, with around 320 of the contracts purchased at an average premium of $0.50 each. Overall options volume on HNR is up above 5,500 contracts, with traders exchanging roughly 6 call options on the stock for each single put option in play.

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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