Tuesday Options Brief: BAC, WWAV & SFD

Includes: BAC, SFD, WWAV
by: Interactive Brokers

BAC - Bank of America Corp. - Bank of America is one of the best performers in the Dow Jones Industrial Average this morning, with shares trading up 3.8% on the session to $10.28, the highest level since July 2011. Heavy call buying across multiple near-term expiries indicates some options traders are positioning for shares in the name to extend gains through year end. Overall options volume on BAC is above 400,000 contracts as of 11:50 a.m. ET in New York, versus the stock's average daily options volume of 295,930 contracts. The bulk of the trading traffic is in Bank of America call options, with the call-to-put ratio up above 3.5-to-1 in the first half of the session. Fresh interest in out-of-the-money calls with two full trading sessions remaining to expiration attracted buyers this morning, with nearly 25,000 calls in play at the Dec. 07 '12 $10.5 strike against open interest of 2,940 contracts. Time and sales data suggests most of the $10.5 strike calls were purchased for an average premium of $0.03 apiece. Interest in the Dec. 14 '12 $10 and $10.5 strike calls is also on the rise this morning. Traders snapped up in- and out-of-the-money Dec. 21 '12 expiry calls as well, paying an average premium of $0.36 apiece for around 21,000 of the $10 strike calls, and shelling out $0.05 per contract for roughly 10,000 calls at the $11 striking price, as of the time of this writing.

WWAV - WhiteWave Foods Co. - Options on dairy and dairy alternative food products provider, WhiteWave Foods Co., are more active than usual today, with noteworthy volume building in the Jan. 2013 expiry puts. Shares in the maker of Silk® soymilk, almondmilk and coconutmilk, and Horizon Organic milk and dairy products, are up 0.80% on the session at $15.77 as of 12:15 p.m. ET, helped higher in part by analyst coverage initiated on the stock at a number of firms today. The bulk of the trading traffic in WWAV options today is in the Jan. 2013 $15 strike put, where more than 550 contracts changed hands this morning versus previously existing open interest of 40 contracts. It looks like one trader sold most of the volume for a premium of $0.50 apiece. The put seller keeps the full amount of premium as long as shares in WhiteWave exceed $15.00 through expiration next month. Meanwhile, buyers of in-the-money calls at the Jan. 2013 $15 and Apr. 2013 $15 strikes at premiums of $1.50 and $1.85 each, respectively, stand ready to profit should the price of the underlying extend gains heading into the New Year. Overall options volume on the stock stands at 920 contracts in early afternoon trade, substantial for stock that sees average daily options volume of around 90 contracts.

SFD - Smithfield Foods, Inc. - Traders appear to be snapping up put options on hog producer, Smithfield Foods, Inc., ahead of the company's second-quarter earnings report prior to the opening bell on Thursday morning. Shares in Smithfield are up better than 2% this afternoon at $22.99 as of 12:40 p.m. on the East Coast. Front month puts are most active, with fresh interest building across multiple striking prices. Put volume is greatest at the Dec. $19 strike, where some 2,200 contracts traded against open interest of just 115 positions. Time and sales indicates the bulk of the $19 strike put options were purchased this morning for an average premium of $0.15 apiece. The put options may provide downside protection for an investor long SFD stock, or could represent an outright bearish bet that shares will drop sharply after earnings. The contracts make money at December expiration if shares in Smithfield plunge 18% from the current level to trade below the effective breakeven price of $18.85. The Dec. $21 strike puts were also active in morning trading after one trader purchased around 755 contracts for a premium of $0.40 apiece. The $21 strike puts make money if shares in SFD decline 10.4% from the current price to breach the breakeven point at $20.60 at expiration.