Wednesday Options Brief: TRIP, SWHC & ARO

Includes: AOBC, ARO, TRIP
by: Interactive Brokers

TRIP - TripAdvisor, Inc. - Shares in the online travel company rallied nearly 7% to a fresh record high of $50.88 on Wednesday morning on positive comments and a target share price increase to $52.00 from $50.00 at Deutsche Bank. TripAdvisor's shares have increased more than 75% during the past four months, rebounding explosively off a 52-week low of $28.63 set back in November of 2012. Options traders positioning for TRIP's shares to extend gains during the next few months appear to be buying upside calls across several expiries today. Near-term bulls snapped up around 1,600 calls at the Mar. $55 strike for an average premium of $0.09 apiece this morning, and may profit at expiration next week in the event that shares in the name surge 8.3% to top the average breakeven point at $55.09. The $55 strike call options expiring in April and June are also active, with traders picking up around 550 lots at the June $55 strike for an average premium of $0.80 each, and roughly 650 of the June $55 strike calls at an average premium of $2.29 a-pop in the early going today. Finally, it looks like one options strategist has generated substantial paper profits on a bullish spread initiated back on February 12th. The sizable one-by-two ratio call spread, constructed with the purchase of 1,500 Mar. $47 calls at a premium of $2.40 each against the sale of 3,000 Mar. $50 calls at a premium of $1.20 apiece, was purchased flat and makes maximum potential profits of $3.00 per contract if shares in TRIP settle at $50.00 at March expiration next week.

SWHC - Smith & Wesson Holding Corp. - Gun manufacturer, Smith & Wesson, raised its profit and sales forecast for fiscal 2013, reported third-quarter net income that more than tripled versus the year ago quarter on a near 40% rise in sales for the period, yet shares in the firearms maker are selling off today, down 6% at $9.60 as of the midday in New York. The stock still trades up 7.5% year-to-date and nearly 80% since this time last year. One or more options traders positioning for Smith & Wesson's shares to rally sharply between now and September expiration picked up far out-of-the-money calls on the stock this morning. Traders exchanged upwards of 3,000 call options at the Sep. $15 strike against open interest of 14 contracts. Time and sales data suggests most of the volume was purchased at a premium of $0.35 apiece. Call buyers stand ready to profit at expiration in six months should shares in SWHC jump 60% to top $15.35. Shares in Smith & Wesson last traded above $15.35 back in October of 2007.

ARO - Aeropostale, Inc. - Shares in teen retailer, Aeropostale, are falling in sympathy with competitor, American Eagle Outfitters, Inc., today with shares in that name dropping nearly 13% after the company's forecast for first-quarter earnings trailed average analyst estimates. Shares in Aeropostale are down 1.25% and off their lowest levels of the session to stand at $13.42 as of 12:15 p.m. ET. Put activity on ARO straight out of the gate this morning suggests some traders may be bracing for shares in the name to pullback following the company's March 14th fourth-quarter earnings report next week. More than 4,500 puts changed hands at the Mar. $13 strike versus open interest of 1,156 contracts during the first half of the trading session. It looks like much of the volume was purchased at an average premium of $0.45 apiece within minutes of the opening bell. Put buyers may profit if shares in Aeropostale drop 6.5% from the current price of $13.42 to breach the average breakeven point on the downside at $12.55 by March expiration.