Tuesday Options Brief: MAS, IWM & WU

Includes: IWM, MAS, WU
by: Interactive Brokers

MAS - Masco Corp. - It's up, up and away for shares in Masco this morning, with the stock up 14.5% on the session at a new four-year high of $20.36, following the maker of home improvement and building products strong fourth-quarter earnings report released after the close on Monday. The stock is up more than 80% since this time last year. Options traders positioning for further upside in the stock during the next few months snapped up some 415 calls at the April $22 strike at a premium of $0.25 per contract. Call buyers profit at April expiration should Masco Corp. shares increase another 9.3% to surpass the effective breakeven price of $22.25. Meanwhile, pre-earnings report bullish bets on MAS have resulted in substantial overnight paper profits for some traders today. It looks like traders purchased around 240 calls at the Feb. $18 strike for an average premium of $0.35 apiece yesterday. These contracts are currently changing hands at $2.60 apiece, a seven-fold increase over the price paid on Monday.

IWM - iShares Russell 2000 Index Fund - Shares in the iShares Russell 2000 Index Fund rallied to a fresh multi-year high again this morning, increasing 0.40% in the early going to touch $91.10. The ETF has rallied more than 8.0% since the end of 2012, but a large options combination play initiated yesterday suggests one strategist is prepared for shares in the fund to pullback during the next six weeks. It looks like the trader purchased a 1-by-2-by-1 put butterfly spread, buying 50,000 puts at the both the Mar. 28 '13 $82 and $88 strikes and selling 100,000 puts at the central Mar. 28 '13 $85 strike, for a net premium outlay of $0.29 per contract. The large put 'fly makes money if shares in the IWM slip 3.7% from Tuesday's high of $91.10 to breach the breakeven point at $87.71, with maximum potential profits of $2.71 per contract available in the event that shares slide 6.7% to settle at $85.00 at March expiration. The limited risk strategy results in full loss of the $0.29 in premium paid for the trade if shares are trading above $88.00 or below $82.00 at expiration next month.

WU - Western Union Co. - Options on global money transfer and payment services provider, Western Union, are active this morning ahead of the company's fourth-quarter earnings report after the close. Shares in WU are down 0.50% on the session to stand at $14.18 as of 11:35 a.m. ET. Bearish puts changing hands on the stock today suggest some traders are positioning for the price of the underlying to decline after earnings. The Feb. $14 strike puts are the most actively traded options on Western Union today, with more than 5,100 lots in play versus substantial open interest in excess of 20,000 contracts. Most of the put trading this morning appear to have been purchased for an average premium of $0.45 each. Put buyers stand ready to profit at expiration this week in the event that WU's shares decline more than 4.0% to trade below the breakeven price of $13.55.