Options Activity Alert: AOL, JCP, RIMM

AOL – AOL, Inc. – Options volume on AOL is up sharply today on news the web services company agreed to sell and license patents to Microsoft in a deal valued at more than $1 billion. The deal drove shares in AOL, Inc. up as much as 46.6% to an intraday- and new 52-week high of $27.00. More than 28,000 options have changed hands on AOL as of 1:00 p.m. in New York, which is roughly 22 times the stock’s 90-day average volume of 1,276 contracts. Options traders positioning for shares in AOL to extend gains in the near term snapped up calls in the front month. Fresh interest building in the April $26, $27 and $28 strikes was largely initiated by buyers. Volume is substantial at the $27 strike, where around 2,250 calls changed hands against 2 open positions. It looks like traders paid an average premium of $0.53 apiece for the options, which may be profitable at expiration as long as shares in AOL rally another 2.0% to surpass the average breakeven price of $27.53 at expiration. Bullish bets initiated back in March certainly seem to be paying off handsomely for some strategists in the aftermath of the run-up in shares. Open interest in the April $19 strike call suggests 200 contracts were purchased for a premium of $0.40 each on March 16th, while another 200 lots were picked up on March 22nd at a premium of $0.25 apiece. These calls currently tout a last-traded price of $7.85, a roughly 20-fold increase over premiums required to purchase the options just a few weeks ago.

JCP – J.C. Penney, Inc. – A long-term bullish options play on retailer, J.C. Penney, Inc., looks for shares in the name to tack on substantial gains by January 2014. The stock today trades down 3.6% to stand at $33.71 as of 1:20 p.m. in New York. The trader responsible for the three-legged options combo appears to have sold 1,500 puts at the Jan. 2014 $25 strike, in order to offset the cost of buying the Jan. 2014 $35/$45 call spread, all for a net premium outlay of approximately $0.35 per contract. The spread positions the strategist to profit in the event that JCP’s shares top the average breakeven price of $35.35 at expiration in 2014. Maximum potential profits of $9.65 per contract are available on the position should the retailer’s shares soar 33.5% to trade above $45.00. J.C. Penney’s shares last exceeded $45.00 back in May 2008.

RIMM – Research in Motion, Ltd. – Weekly options on the Blackberry maker are a mixed bag, with some strategists positioning for shares to extend gains during the next few trading sessions, while others bet Monday’s rally is likely to be short-lived. Shares in Research in Motion are off their highs of the session, but continue to trade higher by 1.75% on the day at $12.89 as of 1:35 p.m. in New York. Buying interest dominated the April $13 strike call and $13 put option activity in the first half of the session. Buyers of the calls are well-positioned to benefit from a further push to the upside, while put buyers stand to profit from a reversal of today’s share price gains. Meanwhile, selling of the April $14 strike call and the $12 strike put implies a range between which some traders expect the share price to settle at the end 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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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