Options Activity Alert: YUM, STJ, SAVE

YUM – YUM! Brands, Inc. – Shares in the operator of Taco Bell, KFC and Pizza Hut dropped like a rock on Friday after the company forecast a decline in fourth-quarter same-store sales in China and projected full-year earnings that missed analyst estimates. The stock fell as much as 10.4% in the first half of the session to an intraday low of $66.98 and was cut to ‘Neutral’ from ‘Positive’ with 12-month target price of $69.00 at Susquehanna. Front month put activity on YUM suggests some traders are positioning for shares in the name to extend losses in the near term. Upwards of 4,500 puts changed hands at the Dec. $65 strike this morning against previously existing open interest of just 392 contracts. Time and sales data suggests the bulk of the put options were purchased for an average premium of $0.92 apiece, thus positioning buyers to make money in the event that YUM’s shares decline another 4.3% to breach the average breakeven price of $64.08 by December expiration. The company’s shareholder meeting is scheduled for Thursday of next week in New York City.

STJ – St. Jude Medical, Inc. – Bearish options on medical devices maker, St. Jude Medical, are in play today after one or more traders snapped up at-the-money puts expiring January 2013. Shares in STJ, which slumped to a multi-year low of $30.25 last week, are up 0.60% today to stand at $33.90 as of 12:20 p.m. ET. Fresh interest in the Jan. 2013 $34 strike put options at the start of the session suggests some traders are positioning for shares in St. Jude to potentially pullback during the next six weeks. Approximately 2,100 of the $34 strike puts traded within the first 10 minutes of the opening bell this morning, with most contracts purchased for an average premium of $1.35 apiece. Traders long the puts may profit at expiration next year should STJ’s shares decline at least 3.7% from the current level to breach the average breakeven point on the downside at $32.65.

SAVE – Spirit Airlines, Inc. – Options on low-fare air carrier, Spirit Airlines, Inc., are more active than usual this morning, with volume topping 2,600 contracts in the early going versus the stock’s average daily options volume of 55 contracts. Shares in Spirit are currently down 1.0% at $16.73 as of 11:05 a.m. ET. Almost all of the trading in SAVE options today is in the Jan. 2013 $15 strike puts, with 2,500 contracts in play against zero open positions. It looks like most of the puts were sold by one strategist within the first 30 minutes of the opening bell for a premium of $0.20 apiece. The put seller keeps the premium received on the transaction as long as shares in Spirit Airlines settle above $15.00 at January expiration. Shares in SAVE last traded below $15.00 in January 2011. The position may result in a large number of shares being put to the trader at expiration in the event the stock price drops more than 10% and the options contracts land in-the-money below $15.00.

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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