Options Activity Alert: YHOO, MPEL, AIG

YHOO – Yahoo!, Inc. – Shares in the Internet media company rallied as much as 2.6% this morning to $15.55 after AllThingsD, citing sources familiar with the situation, reported Yahoo will sell half of its stake in Chinese Internet company, Alibaba, next week. Alibaba is reportedly expected to pay $7.6 billion to buy back 20% of the company in the deal, leaving Yahoo with a 20% stake in the company. Options traders positioning for shares in Yahoo to extend gains ahead of the weekend purchased weekly call options in the first hour of the trading session on Wednesday. It looks like bullish players snapped up around 1,400 of the Sep 14 ’12 $15 strike calls for an average premium of $0.46 apiece. In-the-money call buyers stand ready to profit should Yahoo’s shares settle above the average breakeven price of $15.46 at expiration. Overall options volume on Yahoo is approaching 60,000 contracts at present; calls are far more active than puts, with the call-to-put ratio exceeding 4.0 as of 11:25 a.m. in New York.

MPEL – Melco Crown Entertainment Ltd. – A call spread initiated on casino operator, Melco Crown Entertainment, this morning suggests one options strategist is positioning for shares in the name to rally into 2013. Melco and other casino stocks with operations in Macau are extending gains today one week after the gambling hub reported a 5.5% increase in August revenues, the second-highest monthly reading ever for Macau’s casino industry. Shares in Melco, which have posted double-digit percentage gains since last week, gained 1.9% this morning to stand at $12.83 as of 11:45 a.m. ET. It looks like one trader purchased a 1,000-lot Jan. 2013 $11/$15 call spread at a net premium of $2.00 per contract. The bullish strategy makes money if shares in the casino operator rally above the effective breakeven price of $13.00, and generates maximum potential profits of $2.00 per contract in the event of a 17% move to the upside to top $15.00 by expiration next year. Shares in the name last traded above $15.00 in May.

AIG – American International Group, Inc. – Weekly call options looking for a near-term pop in shares of AIG were heavily traded on Tuesday after the U.S. government reduced its stake in the company to 16% from 53%. The Sep. 14 ’12 $32.5 strike call saw the most action yesterday, with open interest in the weekly contracts rising by 22,864 positions overnight. Shares in AIG opened 2% lower at $32.59 on Tuesday morning, yet calls changing hands at the $32.5 strike were mostly purchased for an average premium of $0.68 apiece in the first half of the session. The bullish activity in AIG options amid the dip in the price of the underlying yesterday signaled some traders were preparing for the stock to reverse course later in the week. AIG shares managed to reverse losses during the previous trading session, ending Tuesday in positive territory, and continued to brighten today. The stock jumped 3% to hit an intraday high of $34.44 within 15 minutes of the opening bell Wednesday, sending premium on the $32.5 strike calls to more than $1.40 each, twice the average premium paid by traders on Tuesday. Current volume of 2,622 weekly calls in play at the $32.5 strike as of 12:40 p.m. ET indicates traders are holding onto their positions for now. Call buyers profit at expiration as long as shares in the insurer settle above the average breakeven price of $33.18.

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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