Tuesday Options Brief: EXPR, MS & WAG

Includes: EXPR, MS, WBA
by: Interactive Brokers

EXPR - Express, Inc. - Shares in clothing and accessories retailer, Express, Inc., are soaring on Tuesday, popping more than 21% to $17.03 during the first half of the session, after the company raised its forecast for fourth-quarter and full-year 2012 earnings and sales. Options on Express are more active than usual today, with volume approaching 13,000 contracts as of 10:55 a.m. ET versus the stock's average daily options volume of around 3,800 contracts. Trading traffic is more heavily concentrated in near-term call options. Bullish players positioning for shares in Express to extend gains snapped up around 500 calls at the Jan. $17.5 strike for an average premium of $0.22 apiece in the early going. Traders long the calls stand ready to profit at expiration this week should shares in the retailer rally another 4% over today's high of $17.03 to top the average breakeven price of $17.72. Like-minded strategists picked up roughly 575 calls out at the Feb. $17.5 strike for an average premium of $0.59 per contract, and may profit at expiration next month if EXPR shares settle above $18.09, the highest price since July 2012. Options traders long upside calls on Express ahead of the sharp move in the price of the underlying today are seeing strong gains in the value of some of those contracts. Call open interest on the retailer is greatest at the Jan. $15 strike, with 17,609 open contracts as of today. Time and sales data from December 31, 2012, through the end of trading yesterday on the Jan. $15 strike call options suggests most of the contracts were purchased for an average premium of $0.44 apiece. The sharp rally in Express shares today now finds premium on the $15 strike calls has more than quadrupled versus the average premium paid for the contracts during the prior 10 trading sessions. Express, Inc. is expected to report fourth-quarter earnings in March.

MS - Morgan Stanley - Shares in the financial services firm, up better than 60% during the past six months, rose 1.4% to $20.35 during the first half of the trading session on Tuesday. Heavy trading traffic near-term call options on Morgan Stanley today suggests some traders are positioning for the stock to extend gains this week, leading up to- or perhaps following the company's fourth-quarter earnings report ahead of the opening bell on Friday. In-the-money call buyers looked to the Jan. $20 striking price, picking up more than 7,300 calls for an average premium of $0.55 apiece. The single-largest transaction in MS options, a block of 10,000 calls, appears to have been purchased at the Jan. $20.5 strike at a premium of $0.32 per contract this morning. Profits on the $20.5 strike calls may be available at expiration should Morgan Stanley's shares trade up another 2.3% over the current price of $20.35 to surpass the effective breakeven point at $20.82.

WAG - Walgreen Co. - A three-legged options combination trade initiated on pharmacy operator, Walgreen Co., this morning appears to be a bullish bet that makes money as long as shares in the name post limited gains during the next three months. Shares in WAG are roughly flat on the session, up 0.10% at $39.08 as of 11:15 a.m. ET. The largest transaction in Walgreen options combines the sale of out-of-the-money put options with the purchase of a bull call spread. The strategist responsible for the position appears to have sold 2,000 puts at the April $35 strike for a premium of $0.43 apiece, and purchased a 2,000-lot April $40/$42 call spread at a premium of $0.565 each. All told, the options spread cost a net premium of $0.135 per contract and positions the trader to make money in the event that Walgreen shares rally at least 2.7% during the next few months to surpass the breakeven point at $40.135. The trade could result in maximum potential profits of $1.865 per contract given a 7.5% upside move in WAG shares to $42.00 by April expiration.