Tuesday Options Brief: SFD, ELLI & GILD

Includes: ELLI, GILD, SFD
by: Interactive Brokers

SFD - Smithfield Foods, Inc. - Put options changing hands on pork processor, Smithfield Foods, Inc., this morning look for shares in the name to potentially pull back to the lowest level year-to-date by May expiration. Shares in SFD are up 0.60% on the session to stand at $25.39 as of 11:20 a.m. ET, reversing a portion of Monday's near 3% decline. The stock is up roughly 25% since this time last year. Overall options volume in excess of 3,750 contracts in play on Smithfield thus far today is substantial versus the stock's average daily volume or around 635 contracts. Most of the volume is in the May $22 strike puts, with some 3,600 lots trading against open interest of 1,179 lots. Time and sales data indicates one trader purchased the bulk of the put options at a premium of $0.20 apiece. The bearish stance may pay off at expiration next month in the event that Smithfield's shares drop 14% from the current level to breach the effective breakeven point on the downside at $21.80.

ELLI - Ellie Mae, Inc. - Options on mortgage management software systems and technology provider, Ellie Mae, Inc., are more active than usual today, with volume rising to roughly five times the stock's average daily volume. Trading traffic in the May expiry put options indicates some traders may be positioning for the price of the underlying to slide following the company's first-quarter earnings report after the close on April 30th. Shares in ELLI, up 105% since this time last year, gained 0.20% this morning to trade at $24.00 by 11:40 a.m. ET. Options traders bracing for shares in the name to falter exchanged roughly 1,000 puts at the May $20 strike, buying most of these contracts for an average premium of $0.39 apiece. Put buyers profit at expiration if ELLI shares slide 18% from the current level to settle below the breakeven price of $19.61. Shares in Ellie Mae last traded below $19.61 at the end of February.

GILD - Gilead Sciences, Inc. - Far out-of-the-money put options trading on Gilead Sciences this morning protect against a severe pullback in the price of the underlying to the lowest levels of the year through June expiration. Shares in GILD, up around 125% since this time last year, gained 2.2% today to trade at $51.80. Traders snapped up around 1,890 of the June $37 puts for a premium of $0.15 each, and purchased 2,797 of the June $35 strike puts at a premium of $0.11 apiece at around 10:10 a.m. ET this morning. Put buyers may be securing disaster insurance to protect long positions in the underlying stock, or establishing outright bearish bets that profit from double-digit percentage declines in the share price. The $37 puts make money if shares in GILD drop nearly 30% from the current price to trade below the breakeven point at $36.85, while the $35 strike puts look for a more than 32% dip in the share price to $34.89 by June expiration. Gilead Sciences reports first-quarter earnings on May 2nd after the closing bell.