Options Activity Alert: KORS, APC, GPS

KORS – Michael Kors Holdings Ltd. – Shares in luxury apparel and accessories retailer, Michael Kors Holdings Ltd., are soaring today after the company posted better-than-expected first-quarter earnings and same-store sales and raised its forecast for second-quarter and full year profit. The stock jumped 16% in the first half of the session to an intraday high of $49.12, nearing its post-IPO high of $50.69 reached back in March. One options strategist who initiated a three-legged bullish spread in the September expiry contracts yesterday ahead of the earnings report this morning saw the value of his or her position skyrocket overnight. It appears the trader sold 525 of the Sept. $36 strike put in order to partially offset the cost of buying a 525-lot Sept. $43/$48 call spread. The sale of the $36 puts and the $48 calls reduced the premium required to get long the Sept. $43 strike calls to just $0.70 per contract from the asking price of $2.82 apiece, effectively lowering the breakeven point to $43.70 from $45.82 while limiting profits to a maximum of $4.30 per contract. Shares in the name are currently above $48.00; if the stock exceeds $48.00 at September expiration, the options trader may walk away with the maximum payout available on the spread. Alternatively, the strategist could choose to take substantial profits off the table today or at some future date by buying-to-close the puts and selling-to-close the call spread.

APC – Anadarko Petroleum Corp. – A large call butterfly spread initiated on Anadarko Petroleum Corp. this afternoon suggests one options player is positioning for the price of the underlying to post big gains during the next few months. Shares in the name, up 0.65% on the day at $68.95 as of 12:50 p.m. in New York, have rallied 22% off the June 4th 52-week low of $56.42, though the stock remains down 12% year to date despite the summer rebound. The size of the call ‘fly continues to increase as the day progresses, but at present, it looks like one strategist purchased 4,000 calls at each of the Nov. $72.5 and $87.5 strikes and sold 8,000 calls at the Nov. $80 strike, all for a net premium outlay of around $1.24 per contract. The trade makes money if shares in APC rally 7% to top the breakeven price of $73.74, with maximum potential profits of $6.26 per contract available in the event shares soar 16% to settle at $80.00 at November expiration. The limited loss strategy could result in maximum possible losses of $1.24 or the full premium paid per contract should the shares trade below $72.50 or above $87.50 by expiration. The one-by-two-by-one butterfly spread is the largest trade in Anadarko options so far today. The company is scheduled to report third-quarter earnings on October 29th, several weeks prior to November options expiration.

GPS – Gap, Inc. – The clothing retailer’s shares, up nearly 90% year-to-date, added another 0.55% today to trade at $34.82 after U.S. retail sales for the month of July increased more than anticipated. Gap, Inc.’s second-quarter earnings report is scheduled for release after the close of trading on Thursday, and it looks like some traders are establishing downside protection while others prepare for shares to hit fresh 52-week highs. The most active options on GPS as of 1:10 p.m. in New York are the Aug. $35 strike put, where upwards of 1,200 in-the-money contracts changed hands against open interest of 384 positions. Most of the volume appears to have been purchased earlier in the session for an average premium of $0.92 apiece. Put buyers may be hedging long stock, locking in gains, or are perhaps taking an outright bearish stance ahead of the quarterly report in case the stock falters. The long puts make money, or realize downside protection, in the event GPS shares decline 2.1% to breach the average breakeven price on the downside at $34.08. Meanwhile, upside calls are active at the Sept. $36 strike where around 260 contracts were picked up for an average premium of $0.82 apiece. Call buyers profit if shares in the retailer rally another 6% to surpass a fresh 52-week high of $36.82.

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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