Options Activity Alert: RIMM, S, HPQ

RIMM – Research In Motion Limited – Shares in the troubled mobile phone maker rallied sharply Wednesday morning on comments from Jefferies & Co. analyst, Peter Misek, regarding the possibility that Samsung Electronics Co. is considering licensing Research In Motion’s new BB10 operating system or buying the company. RIMM is well off its highs of the session at present, up 4.9% at $7.67 as of 11:45 a.m. in New York, down from an initial 12.9% spike in the shares to an intraday high of $8.25. Traders flocked to RIMM options and drove the number of contracts traded to more than three times average daily volume. Heavy put buying in the weekly options suggests gains in the price of the underlying may be short lived. More than 25,000 in-the-money puts changed hands at the Aug. 10 ’12 $8.0 strike versus open interest of just 460 contracts. It looks like most of these put options were purchased in the first hour of the trading day for an average premium of $0.34 apiece. Put buyers profit at expiration this week in the event the Blackberry makers settle below the average breakeven price of $7.66.

S – Sprint Nextel Corp. – The third-largest U.S. wireless carrier’s shares have been on a tear in recent months, having nearly doubled since the end of May. Sizable prints in Sprint call options this morning suggest at least one trader is positioning for the price of the underlying to continue its run during the next few months. The stock today is up 5.0% to stand at $4.53 as of 12:20 p.m. in New York. The sale of a block of 11,129 Aug. $4.0 strike calls for a premium of $0.44 apiece spread against the purchase of a block of 11,148 calls at the Nov. $5.0 strike at a premium of $0.27 each may be the work of an investor rolling up a bullish position. A review of open interest in the Aug. $4.0 calls, which currently stands at approximately 73,000 contracts, indicates buyers paid an average of $0.05 apiece for most of the options back on July 27th. Premium on the $4.0 calls has increased more than eight-fold in the weeks since then. Volume in the Nov. $5.0 strike call of 16,400 contracts is roughly three-times the current open interest level of 5,858 lots, an indication these are opening positions. Buyers of the Nov. $5.0 strike call may see the value of their contracts rise if Sprint’s shares extend gains going forward.

HPQ – Hewlett-Packard Co. – Short-term bets on the direction shares in Hewlett-Packard may take through the end of this week are on the rise today along with the price of the stock. Shares in HPQ increased more than 4% to $19.75 Wednesday after the company raised its third-quarter earnings forecast to $1.00 a share. Trading traffic in the Aug. 10 ’12 $20 strike calls and puts indicates some strategists are positioning for further upside, while others expect the stock to surrender gains by this weekend. The purchase of around 3,000 Aug. $20 strike calls at a premium of $0.10 each may pay off at expiration if shares in the name can rally above $20.10. Call buyers may be out the full $0.10 per contract at expiration, however, if the shares settle below $20.00. Traders anticipating bearish movement in the price of HPQ shares in the second half of the week picked up around 1,900 in-the-money puts at the Aug. 10 ’12 $20 strike for an average premium of $0.47 apiece. Put buyers stand prepared to profit at expiration in the event Hewlett-Packard’s shares trade below the average breakeven point at $19.53. Intraday price movements thus far in the session have worked in favor of put buyers, with premium required to buy the options up at $0.67 each as of 1:00 p.m. on the East Coast. Hewlett-Packard reports third-quarter earnings after the final bell on August 22nd.

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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