Options Activity Alert: BBBY, DWA, HD

BBBY – Bed Bath & Beyond, Inc. – Shares in the operator of retail chain stores Bed Bath & Beyond and Christmas Tree Shops are up the most in the S&P 500 Index today following the release of better-than-expected fourth-quarter earnings on Wednesday. The stock is currently higher by 9.0% to stand at a record high of $72.19 as of 12:00 p.m. in New York. Options on BBBY are more active than usual, with volume fast-approaching 30,000 contracts versus the stock’s 90-day average options volume of 5,564 contracts. Traders appear to be selling the majority of the April expiry puts in play, while the calls are seeing a mix of both buying and selling. The April $70 strike put options are leading in terms of volume, with more than 3,100 contracts changing hands against open interest of 59 positions. It looks like most of the puts were sold for an average premium of $0.91 apiece. Sellers of the contracts walk away with the full amount of premium as long as shares in BBBY top $70.00 through expiration. Sellers appear to be dominating trading traffic at the April $65 and $67.5 strike put options, as well. Finally, pre-earnings bullish positions initiated yesterday in the April expiry calls may yield hefty profits for some traders. It looks like most April $67.5 calls purchased yesterday afternoon prior to the earnings report cost $1.36 apiece. Premium on these calls sky-rocketed overnight, with the now deep in-the-money contracts displaying a last-traded price of $4.80 each.

DWA – DreamWorks Animation SKG, Inc. – The maker of animated feature films appeared on our ‘hot by options volume’ market scanner this morning after a large bullish spread was initiated in the September expiry. The transaction, comprising a total of 15,000 contracts, starts making money if DreamWorks Animation’s shares post double-digit gains in the next six months to expiration. Shares in DWA are currently down 0.50% at $17.73 as of 12:30 p.m. on the East Coast. The trader responsible for the transaction appears to have sold 7,500 puts at the Sep. $15 strike for a premium of $0.65 apiece in order to buy the same number of calls up at the Sep. $20 strike at a premium of $1.00 each. Net premium paid to initiate the trade amounts to $0.35 apiece, thus positioning the trader to profit in the event that shares in DreamWorks rally another 15.0% to top the effective breakeven price of $20.35 by September expiration.

HD – Home Depot, Inc. – The home improvement retailer’s shares are once again hitting fresh multi-year highs, with the stock up 1.4% on the day at $50.56 as of 12:35 p.m. in New York trade. Call activity on Home Depot suggests at least one strategist is gearing up for the bullish momentum to continue in the near term. The front month calls saw most of the action in the first half of the session, with more than 11,800 contracts in play at the April $52.5 strike against open interest of 1,253 positions. It looks like the majority of the calls were purchased for an average premium of $0.10 apiece. Call buyers only ever risk losing the premium paid for the contracts in the event that the $52.5 strike are worthless at expiration, but could reel in hefty profits should shares extend gains during the next couple of weeks. Profits are available to call buyers if Home Depot’s shares rally another 4.0% to surpass the average breakeven price of $52.60 by 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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