Options Activity Alert: CSCO, TJX, INSP

CSCO – Cisco Systems, Inc. – Large risk reversals are dominating the options-landscape on Cisco Systems this morning, helping to drive volume above 540,000 contracts by midday in New York. The maker of networking equipment is the most active single-stock as measured by options volume today following the Company’s third-quarter earnings report after the close Wednesday. Shares are getting crushed, down 10.3% at $16.84 at present, after Cisco forecast lower-than-expected earnings and revenue for the fourth quarter. Risk reversals in the October expiry pay off if shares in CSCO exceed $16.00 through expiration. One large block of 51,000 Oct. $16 puts sold for a premium of $0.77 apiece against the purchase of the same number of Oct. $19 calls at a premium of $0.54 each, yields a net credit of $0.23 per contract. The strategist responsible for the trade keeps the premium if the puts expire worthless at expiration. Additional profits are available on the positions should shares in the name rally 12.8% to top $19.00 during the next five months.

TJX – TJX Companies, Inc. – A sizable put spread on high-flying off-price retail chain operator, TJX Companies, appears to be a near-term bullish bet on the stock. Shares in TJX, up 1.4% at $41.86 this afternoon, have rallied more than 60.0% since this time last year. The sale of a 10,164-lot June $35/$40 put spread results in a net credit of $0.61 per contract, which the trader keeps as long as shares in TJX exceed $40.00 through June expiration. Though a limited risk strategy, the spread could still result in substantial losses of up to $4.39 per contract in the event that TJX shares drop 16.4% to trade below $35.00 at expiration next month. Losses start to amass on the downside if the stock dips beneath the effective breakeven price of $39.39. TJX Companies, Inc. is scheduled to report first-quarter earnings ahead of the opening bell on May 15th.

INSP – InfoSpace, Inc. – Shares in the provider of Internet search tools and technologies are soaring this morning, up 26.8% at $13.92 as of 11:40 a.m. ET, the highest since January 2008. InfoSpace reported first-quarter earnings after the close on Wednesday and forecast second-quarter revenues above sales anticipated by analysts. The sharp rally in INSP has generated hefty profits for one options player who appears to have established a sizable bullish bet on the stock a couple days prior to the earnings release. Open interest in the May $12.5 strike call suggests 500 contracts were purchased for a premium of $0.10 apiece on Monday morning. Seventy-two hours later, the call buyer’s contracts could fetch roughly 14 times the purchase price given the current bid/ask on the options of $1.40/$1.50.

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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