Options Activity Alert: CROX, YUM, LOW

CROX – Crocs, Inc. – The tail may be wagging the dog at casual footwear maker, Crocs, Inc., today with heavy trading traffic in August expiry calls preceding a sharp upside move in the price of the underlying early in the trading session. The stock fell 1.9% at the open and continued to trade in negative territory until a burst of call activity at approximately 9:40 a.m. saw the stock bounce off its lows and gain as much as 6.3% to $15.03. Upwards of 3,500 option contracts have changed hands on CROX thus far in the session, with more than nine calls trading for each put option in play. In- and out-of-the-money calls expiring in August are seeing the most action, with some 1,900 in-the-money contracts purchased for an average premium of $1.00 each at the $14 strike. Another 2,000 contracts traded to the middle of the market at the Aug. $15 strike at an average premium of $0.58 apiece, while 825 calls were picked up at the $16 strike for a premium of $0.30 per contract. The trader or traders responsible for the activity may be positioning for shares to rise following the company’s second-quarter earnings report next Wednesday after the final bell.

YUM – YUM! Brands, Inc. – The operator of fast food restaurant chains KFC, Pizza Hut and Taco Bell, reports second-quarter earnings after the final bell this afternoon. Call spreads initiated on YUM this morning suggests one trader is prepared to profit should shares in the name post single-digit gains ahead of July expiration later in the week. China growth concerns, the crisis in Europe and flagging U.S. consumer confidence have weighed on YUM shares in recent months, with the stock currently down 13% off the April 20th all-time high of $74.44. The stock today, however, is in positive territory with shares in the name up 1.1% at $65.13 just before midday in New York. A one-by-two ratio call spread purchased this morning could be profitable for one options player if the stock extends gains after the earnings report tonight. It looks like the strategist purchased a block of 951 calls at the July $65 strike and sold two blocks of 951 calls each at the July $67.5 strike – a total of 1,902 contracts – all for a net premium outlay of around $0.49 per contract. The spread starts making money if shares in YUM surpass the effective breakeven price of $65.49 and may result in maximum potential profits of $2.01 per contract in the event of a 3.6% upside move in the shares to $67.50 by expiration.

LOW – Lowe’s Companies, Inc. – Shares in home improvement retailer, Lowe’s Companies, Inc., are up 1.05% at $25.82, helped higher by positive June housing starts data released ahead of the open this morning. Options volume on Lowe’s spiked in the first 30 minutes of the session after large positions were initiated in August expiry calls. It looks like strategists betting LOW’s shares are poised to move higher from here exchanged more than 12,000 call options at the Aug. $26 strike versus open interest of 1,190 contracts. The single-largest trade – a block of 6,000 calls – traded to the middle of the market at a premium of $0.55 each, while most of the remaining volume was purchased for an average premium of $0.48 apiece. Traders long the calls start to make money on the position if shares in LOW tack on another 3% in the next few weeks to expiration. August expiry calls expire the week prior to the company’s second quarter earnings report on the 20th of the month. Shares in Lowe’s Companies, which fell yesterday following a downgrade to neutral from buy at Janney Capital, are roughly flat on the year.

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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