Options Activity Alert: YOKU, SWHC, HOT

YOKU – Youku Inc. – Shares in the largest video-sharing website in China have been going gangbusters since the start of the New Year, but a stock and option combination play on Youku Inc. this morning suggests fortunes may reverse when the Beijing-based Company reports fourth-quarter results next week. The stock has rallied 60.0% year-to-date, gaining 4.6% in today’s session to touch an intraday high of $25.90. At first glance, the large 9,231-lot Mar. $28/$30 debit call spread purchased for a premium of $0.45 per contract on YOKU looks like a bullish bet on the Internet stock. However, the sale of 120,003 shares of the underlying stock at $25.40 each linked to the call spread on a 13 delta paints a different picture. Rather than a bet YOKU will extend its run up, the call spread appears to be a hedge against that outcome. The bearish player is limiting losses faced on the upside while positioning to profit on the short stock leg of the transaction if shares in the video-sharing site slump going forward. YOKU reports earnings on Wednesday of next week after the close.

SWHC – Smith & Wesson Holding Corp. – Gun manufacturer, Smith & Wesson Holding Corp., reported better-than-expected third-quarter earnings and raised full year net sales guidance after the bell on Thursday, sending shares in the name up as much as 25.0% to an intraday- and fresh 2-year high of $7.09 this morning. It looks like some options strategists who initiated bullish positions on the stock earlier in the week are making a killing today. One trader appears to be taking profits and establishing a new bullish stance on Smith & Wesson in the April expiry calls. Open interest patterns suggest the options player originally picked up 500 calls at the Mar. $5.0 strike for an average premium of $0.525 each on Tuesday, which he or she then sold this morning at a premium of $1.73 apiece. After tripling their money in a matter of days, the trader now appears to be on the hunt for additional upside gains. The sale of the front month calls was spread against the purchase of 500 call options at the April $7.0 strike for a premium of $0.27 per contract. Profits may be available on the new batch of calls should shares in Smith & Wesson rally another 2.5% to exceed the effective breakeven price of $7.27 at April expiration. Finally, traders itching to buy calls straight out of the gate this morning may profit handsomely from pulling the trigger early on in the game. Fresh interest in the Mar. $6.0 strike calls and sharp intraday gains in the price of the underlying have significantly bid up premium on the contracts during the first half of the session. But, traders buying the calls within seconds of the opening bell paid just $0.20 apiece for roughly 185 lots. Some three hours into the trading day, these same Mar. $6.0 strike contracts tout an asking price of $0.90 a-pop.

HOT – Starwood Hotels & Resorts Worldwide, Inc. – Options on the Stamford, Connecticut-based operator of luxury full-service hotels are more active than usual today. Traders are exchanging more than 10 calls on Starwood Hotels for each single put in play thus far in the session. Activity in the calls suggests some strategists are gearing up for a continued rally in the price of the underlying stock, with shares in the name today trading 1.8% higher on the day at $55.11 as of 12:20 p.m. in New York. Front month call buyers homed in on the Mar. $55 and $57.5 strikes, purchasing around 1,300 and 765 of the contracts at average premiums of $0.80 and $0.15 apiece, respectively. Meanwhile, investors positioning for HOT’s shares to potentially climb to fresh 52-week highs by expiration next month exchanged more than 1,000 calls at the April $62.5 strike against open interest of 130 contracts. It looks like most of the call options were purchased for an average premium of $0.27 a-pop, thus positioning buyers to profit should Starwood’s shares jump % to surpass the average breakeven price of $62.77 at expiration. April $57.5 and $60 strike calls attracted buyers, as well. All told, some 10,000 option contracts changed hands on the hotel operator by 12:30 p.m. on the final trading day of the week.

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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