Tuesday Options Brief: VVUS, RSH, WHR & SLE

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Includes: HSH, RSH, VVUS, WHR
by: Interactive Brokers

Vivus, Inc. (NASDAQ:VVUS)One optimistic investor established a three-legged bullish options combination play on Vivus, Inc. today with shares of the biopharmaceutical firm rebounding a modest 1.01% to trade at $5.01 by 12:15 pm (ET). VVUS shares plunged 64% from last week’s high of $12.98 to a new 52-week low of $4.69 after an advisory committee to the FDA reviewed the firm’s obesity drug, Qnexa, and recommended against approval of the drug. The FDA typically follows committee recommendations. However, one investor is holding out hope that Qnexa will eventually be approved after all. The trader is positioning for shares of the biopharmaceutical company to rally by selling put options to offset the cost of buying a debit call spread. The bullish individual sold 10,000 puts at the December $4.0 strike for a premium of $0.80 each, purchased 10,000 calls at the December $7.0 strike for premium of $1.00 apiece, and sold 10,000 calls at the higher December $12 strike for premium of $0.40 a-pop. The investor receives a net credit of $0.20 per contract and keeps the full amount as long as VVUS shares exceed $4.00 through expiration day in December. Additional profits amass should the firm’s shares surge 39.7% to exceed $7.00 in the next several months to expiration. Maximum available profits of $5.20 per contract pad the investor’s wallet if the biopharmaceutical company’s shares jump 139.5% and trade above $12.00 by expiration day.

RadioShack Corp. (NYSE:RSH)Options traders are enacting diverse bearish strategies on the retailer of consumer electronics goods with shares of the underlying stock plunging as much as 10.95% this morning to touch down as an intraday low of $19.11. RSH shares are currently down a lesser 6.90% to stand at $19.98 as of 11:20 am (ET). RadioShack’s shares fell sharply on news private-equity firms, such as TPG Capital and Blackstone Group LP, are losing interest in making a bid for the retailer. One bearish individual, who appears to have purchased 10,000 puts yesterday, was well positioned to benefit from the downward shift in share price. It looks like the trader picked up 10,000 puts at the August $21 strike on Monday for a premium of $1.15 per contract. Today the investor sold all 10,000 puts for premium of $2.15 each, pocketing net profits of $1.00 per contract. The same bearish strategist indicated RadioShack’s shares could continue to fall ahead of August expiration by purchasing 10,000 fresh puts at the August $19 strike for a premium of $1.15 apiece. The investor makes money on the new put stance if RSH shares decline another 10.7% from the current price of $19.98 to breach the effective breakeven point on the puts at $17.85 by expiration day next month. Another pessimistic player established a ratio put spread in the September contract, buying 1,000 now in-the-money puts at the September $20 strike for premium of $2.00 each, and selling 2,000 puts at the lower September $18 strike for an average premium of $1.05 a-pop. The investor responsible for the ratio spread pockets a net credit of $0.10 per contract. Maximum potential profits of $2.10 per contract are available to the trader if RadioShack’s shares fall another 9.90% to settle at $18.00 at expiration. Finally, bears shed 3,400 calls at the August $22 strike price to take in an average premium of $0.46 apiece. The overall reading of options implied volatility on RSH increased 4.9% to 58.68% by 11:35 am (ET).

Whirlpool Corp. (NYSE:WHR)Shares of the world’s largest appliance maker fell 5.30% to $86.53 by 11:40 am (ET) inspiring bearish options traders to populate the August contract with pessimistic plays. Whirlpool’s shares declined in the first half of the trading session even though the appliance manufacturer raised its profit forecast and said it expects to report record earnings this year. WHR posted second-quarter net income of $2.92 a share, which blew right past average analyst expectations of $2.19 a share. Investors with little hope for a near-term rebound in Whirlpool’s share price sold approximately 2,700 calls at the August $95 strike to receive an average premium of $2.52 per contract. Bearish sentiment spread to the lower August $90 strike where options players sold 1,600 calls at an average premium of $4.54 apiece. Call sellers keep the premium pocketed on the transaction as long as WHR’s shares fail to rally above the strike prices described through August expiration.

Sara Lee Corp. (SLE) Investors exchanging options on the maker of brand-name consumer products appear to be positioning for shares of the underlying stock to hit a new 52-week high by expiration day in September. Sara Lee’s shares inched up 0.10% to $14.20 by 12:05 pm (ET). Optimists picked up approximately 1,700 calls at the September $15 strike for an average premium of $0.20 a-pop. Call buyers are poised to profit should SLE’s shares rally 7.00% to surpass the current 52-week high of $15.08, attained back on June 22, and exceed the effective breakeven price of $15.20 by September expiration.