Options Activity Alert: JOY, SFLY, PFE

JOY – Joy Global, Inc. – Shares in mining equipment maker, Joy Global, rallied as much as 3.2% at the start of the session to $75.18, but the stock has since slipped into negative territory, trading down 0.50% to stand at $72.51 as of 12:50 p.m. in New York. Call buying on JOY this morning indicates traders are gearing up for shares in the Milwaukee, Wisconsin-based Company to increase in the near term. Weekly calls and front month calls saw the most action today before the stock surrendered gains to join in on the broad market decline. In-the-money $70 strike weekly calls changed hands 1,000 times for an average premium of $3.89 apiece, and appear to have been purchased by traders expecting shares to top $73.89 at expiration. Call buyers also targeted the $75 and $77.5 strike weekly options, snapping up more than 400 lots at each strike at average premiums of $1.66 and $0.32 each, respectively. Front month calls were most active at the April $80 strike, where more than 4,650 contracts traded against open interest of 3,935 positions. It looks like the majority of the contracts were purchased for an average premium of $0.47 apiece, thus positioning buyers to make money should Joy Global’s shares jump 11.0% to exceed the average breakeven price of $80.47 at expiration next week.

SFLY – Shutterfly, Inc. – The selloff in shares of Shutterfly continued for a second-straight day on news Facebook will pay roughly $1 billion to buy Instagram’s photo-sharing application. SFLY’s shares are 4.4% lower today to stand at $26.98, but have lost 60.0% of their value in the past 52 weeks since reaching an all-time high of $66.70 back on April 28, 2011. Some traders appear to be positioning for the pullback to continue for Shutterfly, while others may be taking a chance on a recovery play. Put buying at the June $22.5 strike, where some 600 contracts changed hands against 302 open positions, suggests some traders are prepared for the price of the underlying to extend losses. It looks like most of the $22.5 strike put volume was initiated by buyers shelling out an average premium of $1.15 per contract. Traders long the puts stand ready to profit should shares in SFLY plunge 21.0% to breach the lower breakeven price of $21.35 by June expiration. May contract call activity, however, could be a sign of optimism by one or more traders. It appears a roughly 650-lot May $30/$35 call spread was purchased this morning for an average net premium of $1.00 per contract. If the call spread was purchased outright, rather than as a hedge for a short stock position, the strategy points to expectations for a near-term rally in the shares. The debit call spread is profitable as long as shares in Shutterfly rally at least 14.9% to top $31.00 by May expiration. Maximum potential profits of $4.00 per contract are available on the spread in the event that shares soar 30.0% to trade above $35.00. SFLY’s shares last exceeded $35.00 back in November.

PFE – Pfizer, Inc. – A burst of call buying on pharmaceutical giant, Pfizer, Inc., suggests at least one trader is positioning for shares in the drug maker to extend gains in the near term. Shares in PFE are up 1.6% at $22.40 this morning, hovering just below the March 27th multi-year high of $22.80. The stock was initiated with a ‘buy’ rating and 12-month share price target of $25.00 at ISI Group yesterday. Weekly call volume is greatest at the April ’13 $22 strike, where more than 4,800 contracts changed hands against open interest of 625 positions straight out of the gate this morning. It looks like most of these in-the-money call options were purchased for as little as $0.19 apiece. Profits are available on the long-calls in the event that shares in Pfizer settle above the average breakeven price of $22.19 at expiration. Premium on the $22 strike calls has increased substantially intraday, with the price tag to buy the contracts having more than doubled to $0.42 each in the first half of the session.

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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