Options Activity Alert: LOW, CBE, AIG

LOW – Lowe’s Companies, Inc. – Shares in Lowe’s were hammered Monday after the home improvement retailer lowered its full-year earnings forecast and reported a smaller-than-expected increase in same-store sales. The stock is currently down 9.7% at $25.72 as of 12:30 p.m. ET following the company’s first-quarter earnings report this morning. Options activity in the front month is mixed, with some traders positioning for the stock to rebound, while others brace for further downside in the near term. Strategists constructing positions that benefit from a recovery in the shares homed in on the June $27 strike call, trading upwards of 5,800 contracts versus open interest of 18 positions. It looks like most of the calls were purchased for an average premium of $0.45 apiece, thus positioning longs to profit should LOW’s shares rally 6.7% to top $27.45 by June expiration. Meanwhile, put buying at the June $25 strike points to near-term bearish sentiment on the stock. Traders exchanged more than 2,300 of the $25 strike put options, purchasing most of the volume at an average premium of $0.65 each. The strategy may be profitable at expiration next month should Lowe’s shares decline another 5.3% to breach the average breakeven price of $24.35. Options volume of 30,715 on the second-largest U.S. home improvement retailer this afternoon today runs at twice the 90-day average options volume for the name.

CBE – Cooper Industries PLC – Shares in the Maynooth, Ireland-based maker of electrical products and tools rallied nearly 30.0% to a record-high of $71.73 today after diversified power management company, Eaton Corp., agreed to buy Cooper Industries in a cash and stock deal valued at $11.8 billion. Options on Cooper are more active than usual with just fewer than 800 contracts in play as of 1:00 p.m. ET versus the 90-day average options volume on the stock of 91 contracts. Open interest in July expiry call options on CBE suggests one trader that had purchased 200 of the $60 strike contracts earlier this month now holds calls that have skyrocketed in value. Time and sales data indicate 200 of the July $60 strike call were purchased at a premium of $3.20 each back on May 8th. Less than two weeks later, these contracts now trade at triple that amount given a last-traded price of $10.50 this afternoon.

AIG – American International Group, Inc. – Bullish positioning in weekly options on the insurer popped this morning, along with the price of the underlying shares, following positive comments from an AIG executive at the Deutsche Bank 2012 Global Financial Services Investor conference in New York this morning. The stock rallied as much as 4.7% in the first half of the trading session to touch an intraday high of $29.66. Short term bullish bets that shares may extend gains this week are building in the May 25 ’12 $30 strike, where more than 4,600 contracts changed hands at an average premium of $0.32 apiece against open interest of 1,019 positions. Call buyers may profit at expiration in the event that AIG’s shares rally another 2.2% over today’s high of $29.66 to surpass the average breakeven price of $30.32. Trading traffic overall in the insurer’s options are heavily favoring calls over puts, with the call-to-put ratio currently exceeding 3.6-to-1.

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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