Wednesday Options Brief: CS, GM & TXT

 |  Includes: CS, GM, TXT
by: Interactive Brokers

CS - Credit Suisse Group - Call options changing hands on global financial services firm, Credit Suisse Group, this morning look for shares in the name to rally in the near term, perhaps following the Zurich, Switzerland-based company's first-quarter earnings report one week from today. Shares in CS are down 4.6% on the session to stand at $27.50 just after midday in New York. The May $28 strike calls are seeing the most volume, with upwards of 2,700 lots in play versus open interest of 341 contracts. It looks like most of the volume was purchased at a premium of $0.75 apiece, thus positioning buyers to profit in the event that the price of the underlying increases 4.5% to settle above the breakeven price of $28.75 at expiration. Yesterday afternoon the May $29 strike calls also traded more than 2,500 times, with the bulk of those contracts purchased for $0.75 each. Upside call buyers may lose the full amount of premium paid for the options contracts should the rally in CS shares fail to materialize by May expiration. Though shares have surrendered approximately 10% of their value since touching a 52-week high of $30.40 on February 2nd, the stock continues to trade up 70% off the 52-week low of $16.09 reached back in August of 2012.

GM - General Motors Co. - Shares in General Motors are in negative territory today, down 1.5% at $29.03 as of 12:35 p.m. ET, amid a down day for U.S. stocks. It looks like some traders may be taking advantage of the dip in GM's shares to initiate bullish bets on the stock ahead of the company's first-quarter earnings report on May 2nd. Call options on the automaker are outpacing puts, with the call/put ratio hovering around 3.5 in early afternoon trading. Sizable volume in the June $31 and $33 strike calls caught our eye, though volume at both strikes is lighter than existing open interest levels. It looks like traders purchased around 4,000 calls at each strike, paying average premiums of $0.71 and $0.34 apiece, respectively, within the first 30 minutes of the opening bell. Call buyers may profit at June expiration should shares in GM surge 9% and more than 20% to top average breakeven points at $31.71 and $33.34. Other possible bullish signals in GM options activity today was the sale of around 1,700 puts at the May $25 striking price at a premium of $0.11 each, as well as the sale of some 500 puts at the May $26 strike for a premium of $0.22 per contract. Put sellers keep the full amount of premium as long as the puts expire worthless next month.

TXT - Textron, Inc. - Options activity on the maker of military and civilian aircraft suggests some traders are bracing for shares in Textron to extend losses in the near term. The stock fell more than 13% this morning to an intraday low of $25.37 after the company lowered its guidance for full year earnings. Fresh interest in far out-of-the-money puts on Textron look for the price of the underlying to potentially slide to the lowest levels since July of 2012 during the next couple of months. Traders snapped up 250 puts at the May $23 strike for a premium of $0.21 each, around 150 lots at the June $23 striking price at a premium of $0.35 apiece, and purchased roughly 500 puts at the June $24 strike for a premium of $0.58 per contract. Buyers of the June $24 strike puts start making money if shares in Textron decline another 8% off today's low of $25.37 to breach the breakeven point on the downside at $23.42 by June expiration.