Options Activity Alert: WFC, MS, ODP, CPWM

WFC – Wells Fargo & Co. – Financial stocks were among the weakest performers as trading got underway this morning, spurring bearish activity in options on the largest banks. Shares in Wells Fargo are down 1.3% at $32.73 as of midday in New York, having surrendered a total of 5.4% since reaching a more than three-year high of $34.59 on April 2nd. Weekly put buying on San Francisco, California-based Wells Fargo & Co. suggests some traders anticipate the stock may continue to sell off through the end of this week. The May 11 ’12 $32 strike put saw the most action, with more than 2,600 of the contracts purchased for an average premium of $0.16 apiece this morning. Put buyers may profit at expiration if shares in WFC decline another 2.7% to breach the average breakeven point on the downside at $31.84.

MS – Morgan Stanley – Investors in Morgan Stanley are feeling more pain today, with shares in the name down 0.50% at $15.76 in early afternoon trading on the heels of a more than 25.0% move lower since the end of March. Options traders looking to benefit from further potential weakness in the shares snapped up more than 3,200 puts at the May 11 ’12 $15 strike for an average premium of $0.13 apiece. Traders long the weekly $15 puts on the financial services firm stand ready to profit in the event that shares in Morgan Stanley drop another 5.6% to trade below the average breakeven price of $14.87. Shares in MS last traded south of $14.87 back in December 2011.

ODP – Office Depot, Inc. – A large ratio call spread initiated in office supplies retailer, Office Depot, Inc., this morning may result in a sizable payoff should the price of the underlying rally sharply during the next five months. Shares in ODP are down 1.3% this afternoon to stand at $2.33 as of 12:35 p.m. ET. The stock has dropped nearly 40.0% since the end of March and is down 60.0% since this time last year, but one strategist is prepared to benefit from a substantial move to the upside. It looks like the trader purchased 5,750 calls at the Oct. $3.0 strike for an average premium of $0.225 each and sold 11,500 calls up at the Oct. $4.0 strike at a premium of $0.05 apiece. The ratio spread cost $0.125 per contract and yields profits in the event that ODP’s shares surge 34.1% to surpass the effective breakeven price of $3.125. Maximum potential profits of $ are available on the trade should shares in Office Depot jump 71.7% to settle at $4.00 at October expiration.

CPWM – Cost Plus, Inc. – Shares in the home goods retailer are up 21.65% today at $21.88 after Bed Bath & Beyond, Inc. agreed to purchase the Oakland, California-based company for around $495 million, or $22.00 a share. One trader who appears to have purchased some call options on Cost Plus last week is now holding contracts that have quadrupled in value. It looks like the strategist picked up 75 calls at the May $17.5 strike last Friday at a premium of $1.10 each when shares in Cost Plus were hovering around $17.75. Premium required to purchase these contracts today has risen to $4.50 as of 11:50 a.m. in New York.

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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