Wednesday Options Brief: CTSH, CZR & MCK

Includes: CTSH, CZR, MCK
by: Interactive Brokers

CTSH - Cognizant Technology Solutions Corp. - Put options are changing hands on IT consulting and technology services provider, Cognizant Technology Solutions Corp., this morning, with shares in the name declining as much as 1.1% to an intraday low of $78.12. The stock has declined 3.7% since last week after securing a new 52-week high of $81.12 during Thursday's trading session. Cognizant was downgraded to 'Sector Perform' from 'Outperform' at Pacific Crest on Monday. One or more options traders bracing for further declines in Cognizant's shares in the near term snapped up April expiry puts on the name in the early going today. The April $75 strike puts are the most actively traded contracts on Cognizant, with upwards of 5,800 lots in play versus open interest of 897 contracts. It looks like most of the volume was purchased during the first few minutes of the trading day for an average premium of $0.83 each. The contracts make money if shares in CTSH decline another 5.0% from today's low of $81.12 to breach the average breakeven point on the downside at $74.17 by April expiration. Shares in Cognizant last traded below $74.17 in January.

CZR - Caesars Entertainment Corp. - Shares in casino operator, Caesars Entertainment Corp., are rallying Wednesday, up as much as 10.4% during the first half of the session to touch a new 52-week high of $15.83. Front month call buyers appear to be positioning for further gains in the price of the underlying ahead of the weekend, while fresh interest in April expiry puts suggests other strategists are prepared for shares to potentially decline during the next five weeks. Traders exchanged more than 1,100 in-the-money calls at the Mar. $15 strike by 12:30 p.m. ET on Wednesday, and it looks like most of the volume was purchased for an average premium of $0.48 per contract. Bullish bets may pay off at expiration later this week in the event that shares in Caesars settle above the average breakeven price of $15.48. Meanwhile, the most heavily traded options contracts on CZR so far today are the April $15 strike puts, with roughly 1,800 lots in play versus open interest of just 40 contracts. Most of the puts appear to have been purchased at an average premium of $1.41 apiece, thus positioning buyers to profit given a more than 14% decline in the share price to $13.59 by April expiration. Shares in CZR have rallied more than 120% since the start of 2013.

MCK - McKesson Corp. - Shares in the healthcare services company touched a new all-time high this morning, rising 1.2% to $111.18 just before midday in New York. The stock has increased nearly 30% since this time last year. Options traders took to April expiry call options in the early going, and appear to be bulking up on bullish contracts to position for shares in McKesson to extend gains in the near term. The April $115 and $120 strike calls are seeing the most action today, with volumes in excess of 1,000 and 1,700 contracts in play at each strike. It looks like traders purchased most of the calls at average premiums of $0.63 and $0.15 apiece, respectively, in the early going. Call buyers may profit at expiration next month if shares in McKesson continue to hit fresh record highs and trade above average breakeven points at $115.63 and $120.15. Finally, bullish bets initiated on McKesson at the end of February appear to be working for at least one options player already; 800 calls look to have been purchased at the April $105 strike for a premium of $3.20 back on February 28th. These contracts have appreciated markedly along with the price of the underlying, with the bid/ask spread on these contracts now at $6.20/$6.70 as of the time of this writing.