Monday Options Brief: STZ, PETM & XRT

Includes: PETM, STZ, XRT
by: Interactive Brokers

STZ - Constellation Brands, Inc. - A large stock and options combination play on wine, beer and spirits producer, Constellation Brands, Inc., appears to be a synthetic put on the name that benefits from bearish movement in the price of the underlying in the near term. Shares in STZ, up roughly 80% since mid-June 2012, are currently down 1.1% on Monday afternoon to stand at $35.24 as of 12:05 p.m. in New York trading. The hefty transaction in STZ options today pushed overall options volume to a level well above the stock's average daily options volume of around 13,100 contracts. The largest transaction in STZ options appears to be the purchase of a 20,000-lot Feb. $37.5/$42.5 call spread for an average net premium outlay of $0.75 per contract, tied to the sale of STZ shares at $34.80 on a 25.5 delta. The synthetic put position is a bearish strategy that prepares the trader to profit from declines in the price of Constellation Brands' shares through February expiration.

PETM - PetSmart, Inc. - Shares in the specialty retailer of products and services for pets and their owners are in negative territory on the first trading session of the week, down 1.0% at $67.50 as of 11:30 a.m. ET on Monday. A sizable bearish options strategy initiated on PetSmart today suggests one trader is bracing for shares to potentially extend declines during the next few months. It looks like the strategist purchased a 2,000-lot April $60/$65 put spread for a net premium of $1.80 per contract. The bearish position starts making money if shares in PETM decline 6.4% from the current price of $67.50 to breach the effective breakeven point at $63.20. Maximum potential profits of $3.20 per contract are available on the trade in the event that shares drop more than 11% to settle below $60.00 at April expiration. PetSmart's shares last traded below $60.00 in May 2012.

XRT - SPDR S&P Retail ETF - The XRT, an ETF that seeks to replicate the total return performance of the S&P Retail Select Industry Index, popped up on our 'most active by options volume' market scanner this morning after a large spread was initiated in the March expiry put options. The bearish strategy protects against a more than 7% adverse move in the price of the underlying during the next couple of months. Shares in the XRT, up nearly 20% since this time last year, today trade 0.30% lower on the session at $62.85 as of 11:45 a.m. ET. The single-largest trade in XRT options this morning appears to be a 10,000-lot Mar. $58/$62 debit put spread, purchased for a net premium of $0.97 per contract not long after the opening bell. The bearish strategist makes money if shares in the XRT decline 2.9% from the current price of $62.85 to trade below the breakeven point at $61.03. Maximum potential profits of $3.03 per contract are available on the trade should shares drop 7.7% to $58.00 during the next nine weeks to March expiration. A move down to $58.00 would return the price of the underlying fund down to the lowest level since August 2012.