Options Activity Alert: AEO, HON, GDP

AEO – American Eagle Outfitters, Inc. – A large long-term bullish options play on teen retailer, American Eagle Outfitters, Inc., near the open looks for shares in the name to potentially reach levels not seen since 2007 by January 2014. Shares in American Eagle soared in 2012, rising approximately 90% since the first week of the year to touch a four-year high of $23.94 back on September 19th. Though off their highest level of the year, shares in AEO increased 2.6% this morning to $21.56 after the stock was rated new ‘Market Outperform’ with a 12-month target share price of $27.00 at Avondale Partners LLC. A three-legged options combination spread initiated on AEO at the start of the session prepares one options player to profit should the price of the underlying continue to push higher during the next calendar year. The strategist responsible for the single-largest transaction in American Eagle options today appears to have sold 5,000 puts at the Jan. 2014 $18.5 strike in order to substantially reduce the cost of buying a 5,000-lot Jan. 2014 $22/$30 call spread. Net premium paid to establish the position amounts to $0.20 per contract and prepares the trader to make money above an effective breakeven price of $22.20. Maximum potential profits of $7.80 per contract are available on the spread should American Eagle’s shares gain 40% to top $30.00 by expiration in January 2014. The trader could wind up having 500,000 shares of the underlying stock put to him or her at expiration in the event of a sharp pullback in shares of the high-flyer to the $18.50-level and below.

HON – Honeywell International, Inc.– Shares in diversified industrials company, Honeywell International, Inc., are up 0.15% as of 11:50 a.m. in New York to stand at $61.53, adding to gains realized earlier in the week after the company agreed to take a 70% stake in Tulsa, Oklahoma-based Thomas Russell Co. for $525 million in cash. The deal gives Honeywell the right to purchase the remainder of the closely-held company and expands its presence in the U.S. shale gas industry. Activity in HON call options this morning suggests some traders are positioning for shares in the name to rally to fresh multi-year highs in the near term. Volume in the front month calls is greatest at the Oct. $65 strike where upwards of 2,900 contracts changed hands against open interest of 609 positions. It looks like most of the calls were purchased for an average premium of $0.14 apiece and may be profitable at expiration in the event of a 6% move to the upside in the share price to a new 52-week high of $65.14. Bullish strategists also dabbled in November expiry options, buying around 425 of the Nov. $65 strike call and more than 540 contracts at the Nov. $67.5 strike this morning at average premiums of $0.44 and $0.13 apiece, respectively. Traders long the calls appear to be betting that shares in Honeywell are poised to rise significantly during the next six weeks. Shares in the name last traded above the $65.00-level in 1999. The company is scheduled to report third-quarter earnings ahead of the opening bell on October 19th.

GDP – Goodrich Petroleum Corp. – Options traders driving fresh interest in Goodrich Petroleum Corp. calls this morning may be positioning for shares in the Houston, Texas-based oil and gas company to rebound during the next six weeks. Shares in Goodrich, down roughly 12% year-to-date, slipped 3.2% this afternoon to $12.60 by 12:15 p.m. ET. The Nov. $15 strike call changed hands around 2,600 times early in the trading session against open interest of 76 contracts. It looks like most of the volume was purchased for an average premium of $0.46 apiece, preparing upside call buyers to profit given a 23% spike in the underlying share price to $15.46 by November expiration. Goodrich is scheduled to present at a number of conferences in October, including the Johnson Rice Energy Conference in New Orleans today. The company’s third-quarter earnings report is several weeks away, but call buyers may be placing bullish bets on the stock prior to the quarterly release.

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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