Options Activity Alert: GPS, TJX, EA

GPS – Gap, Inc. – The operator of retail chains Gap, Banana Republic and Old Navy popped up on our market scanners after a large bullish spread was initiated in the May expiry. Shares in Gap are up 2.15% at $26.70 today on the heels of an upgrade to ‘Above Average’ with a target price of $32.00 at Caris & Co. Gap’s shares rallied sharply in the first quarter – currently up 44.5% since the start of 2012 – and it looks like one trader employed a sizable debit call spread to position for the up-trend to continue in the near term. The trader appears to have purchased 6,500 calls at the May $28 strike for a premium of $0.58 each, and sold the same number of calls up at the May $30 strike at a premium of $0.17 apiece. Net premium paid to initiate the spread amounts to $0.41 per contract, thus positioning the strategist to profit at expiration as long as shares in Gap rally another 6.4% to top the breakeven point at $28.41. Maximum potential profits of $1.59 per contract are available on the trade in the event that shares surge 12.4% to trade above $30.00 at May expiration. The Gap, Inc. is scheduled to report first-quarter earnings after the closing bell on May 17th.

TJX – TJX Companies, Inc. – Shares in the off-price retail chain operator kicked off the trading week in rally-mode, trading up 0.70% at the open to a new record high of $39.99, but reversed earlier gains to stand 0.20% lower on the day as of 11:20 a.m. in New York. The most active options on TJX Companies suggest at least one strategist is positioning for fresh all-time highs in the price of the underlying in the near term, while other traders may not be assuming as optimistic a stance on the name. It looks like one bullish player purchased 3,000 calls at the May $42.5 strike for an average premium of $0.33 apiece. Profits are available to the investor in the event that TJX’s shares surge 7.1% to surpass the average breakeven price of $42.83 by May expiration. The operator of T.J. MAXX, Marshalls Group and HomeGoods reports first quarter earnings on May 15th ahead of the opening bell. Finally, traders snapping up July expiry put options this morning may be long the stock and protecting their gains. Alternatively, put buyers could be taking an outright bearish stance on TJX, positioning for an 8.9% pullback below the breakeven price on the downside at $36.44 by expiration.

EA – Electronic Arts, Inc. – Options trades betting that shares in Electronic Arts may post double-digit gains in the next seven weeks appear to be accumulating in the May expiry. Shares in the video game software and content provider are up 0.70% at $16.60 as of 11:50 a.m. on the East Coast. It looks like one trader this morning purchased a roughly 2,500-lot May $16/$19 call spread for an average net premium of $0.98 per contract. The call spread prepares the investor to profit should shares in Electronic Arts rally another 2.3% to top the average breakeven price of $16.98 by expiration next month. Open interest in the May $16 and $19 strike calls suggests an 815-lot call spread was purchased this past Thursday at a net premium outlay of $0.98 apiece. The buyer or buyers responsible for the $16/$19 call spreads may walk away with maximum possible profits of $2.02 per contract if shares in EA surge 14.5% to trade above $19.00 at expiration.

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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