Options Activity Alert: TIF, GRA, DOW

TIF – Tiffany & Co. – Options on Tiffany & Co. are more active than usual today, the final day to trade the contracts ahead of the luxury jewelry retailer’s second-quarter earnings report scheduled for release prior to the opening bell on Monday. Shares in Tiffany are off their lows of the session, down 0.25% at $58.30 as of 11:40 a.m. ET. The stock has struggled in 2012 on concerns luxury spending will slow; a strong run in the first three months of the year marked by a year-to-date high of $74.20 in March evaporated in the second quarter amid European debt crisis concerns and China growth worries. The pullback picked up steam in May after Tiffany cut its full year guidance for sales and profits, with the stock touching down at a 52-week low of $49.72 at the end of June. Tiffany’s shares have improved off the June low, but one options play on the stock this morning suggests the shares could slip again following earnings. It looks like one strategist purchased 900 puts at the Sep. $55 strike and sold 1,800 puts at the lower Sep. $50 strike, all for a net premium outlay of $0.70 per contract. The position makes money if shares in Tiffany fall 7% from the current level to breach the effective breakeven price of $54.30, with maximum potential profits of $4.30 available on the spread should shares plunge 14% to settle at $50.00 by expiration next month. The options trader could be hedging a long position in the stock prior to the earnings report on Monday, or placing an outright bearish stance on the luxury retailer. If the stock rallies on better-than-expected results next week, the trader may lose the full amount of premium paid to establish the position.

GRA – W.R. Grace & Co. – A large options combination spread initiated on specialty chemical producer, W.R. Grace & Co., this morning appears to be the work of an investor positioning for possible double digit gains in the share price by year end. The stock is up 0.40% this morning at $58.89 as of 11:50 a.m. ET. The strategist behind the sizable trade appears to have sold 3,000 puts at the Dec. $50 strike in order to partially finance the purchase of a 3,000-lot Dec. $60/$70 call spread. Net premium paid to initiate the three-legged trade amounts to $1.70 per contract and starts making money if shares in W.R. Grace & Co. rally another 5% to top the effective breakeven price of $61.70 by December expiration. The chemical company’s shares, which hit a low of $2.95 during the 2008 financial crisis, have rallied nearly 1,900% in the years since, and may, by the looks of this bullish options trade, add to the impressive run during the next four months. The strategist stands to make maximum potential profits of $8.30 per contract in the event W.R. Grace’s shares rally another 19% to settle at $70.00 at expiration, the highest since 1998.

DOW – Dow Chemical Co. – Options on another chemical producer, Dow Chemical Co., saw medium-term bullish strategies take shape on Friday morning. It looks like one or more traders are purchasing upside calls on the name, positioning for the price of the underlying to potentially rise during the next seven months. Shares in the name are currently up 0.15% to stand at $29.83 as of 12:30 p.m. ET. The majority of the volume in DOW options is in the Mar. ’13 $30 strike call where upwards of 1,500 lots changed hands versus open interest of 809 contracts. It looks like most of the call options were purchased within the first 10 minutes of the trading session for an average premium of $2.20 per contract. Call buyers may profit if Dow’s shares rally another 8% to surpass the breakeven price of $32.20 by March expiration. The stock last traded above $32.20 at the end of June. Both W.R. Grace & Co. and Dow Chemical Co. are scheduled to report third-quarter earnings in the final full week of October.

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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