Options Activity Alert: WMT, F, YMI

F – Ford Motor Co. – What appears to be a large one-by-three ratio call spread on Ford suggests one options market participant is looking for sizable, albeit limited, gains in the price of the automaker’s shares during the next five weeks. Ford Motor Co. shares are currently up 0.45% at $11.54 as of 12:55 p.m. ET. It looks like the options player purchased 25,000 calls at the Jan. 2013 $12.5 strike for a premium of $0.12 apiece, and sold 75,000 calls up at the $14 strike at a premium of $0.02 each. Net premium paid to establish the position amounts to $0.06 per contract and may be profitable in the event that Ford’s shares rally 9% off the current price to exceed the effective breakeven point at $12.56. Maximum potential profits of $1.44 per contract are available on the spread should shares in Ford jump more than 20% to settle at $14.00 at expiration next year. Shares in Ford last traded above $14.00 back in July 2011.

YMI – YM Biosciences, Inc. – Shares in the drug development company are up nearly 80% today at $2.89 after Gilead Sciences, Inc. agreed to purchase the Canadian biotechnology company in an all-cash deal valued at $510 million or $2.95 a share. Traders who purchased upside calls on YM Biosciences ahead of the deal saw the value of their contracts rise sharply along with the price of the underlying shares this morning. YMI call selling in the early going may be the work of traders taking substantial profits off the table. Time and sales data for transactions in the Dec. $2.5 strike calls back in November suggests traders purchased most of the 2,043 open contracts for an average premium of $0.05 apiece last month. The sale of at least 1,600 now in-the-money Dec. $2.5 strike calls this morning for an average premium of $0.40 each may mean traders are banking hefty gains that amount to eight times the original investment. Open interest in YMI options is largest in the Jan. 2013 $2.5 strike call, with a total of 3,894 open contracts. Traders on Monday and Tuesday of this week appear to have purchased most of the calls for an average premium of $0.13 each. Trading traffic in the $2.5 strike call this morning reveals much of the volume this morning was sold at a premium of $0.40 per contract.

WMT – Wal-Mart Stores, Inc. – Upside call options on Wal-Mart are active today though shares in the world’s largest retailer are trading down for a second consecutive session, currently off 2.3% on the day at $69.23 as of 1:15 p.m. in New York. Bulls anticipating a rebound by the end of this week purchased around 2,500 calls at the Dec. 14 ’12 $70 strike for an average premium of $0.22 apiece, thus positioning to profit should shares rally above $70.22 by expiration. Like-minded strategists snapped up 4,400 calls at the Dec. 21 ’12 $70 strike at an average premium of $0.47 each, and purchased around 1,700 of the $72.5 strike calls expiring next week for an average premium of $0.05 a-pop. Traders long the $72.5 strike calls stand ready to profit should shares in WMT increase at least 4.8% to exceed the $72.55 breakeven price by expiration. Meanwhile, the heaviest trading traffic in Wal-Mart Stores calls is in the Jan. 2013 $75 strike contracts. It looks like volume in excess of 40,000 call options traded at the $75 strike this morning for an average premium of $0.085 per contract. The sizable prints may represent closing purchases of calls sold back in July.

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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