Wednesday Options Brief: RRC, MHS, HSP & CHS

 |  Includes: CHS, HSP, MHS, RRC
by: Interactive Brokers

Range Resources Corp. (NYSE:RRC)Frenzied options activity on the Texas-based independent oil and gas exploration and development company ensued right out of the gate this morning with shares of the underlying stock rallying 2.65% to $38.22 by 12:20 pm ET. Range Resources’ shares fell sharply yesterday after the firm posted weaker-than-expected earnings for the second quarter and said it plans to increase spending in 2010. An analyst at Canaccord Genuity Corp. cut RRC to ‘hold’ from ‘buy’ and assigned its shares a 12-month target price of $41.00 this morning. However, a number of options investors populating the August contract purchased calls to position for continued bullish movement in the price of RRC’s shares. The call buying action may be taken as a sign that some investors are not expecting Range Resources’ shares to remain depressed through August expiration. Optimists picked up approximately 1,600 calls at the August $39 strike for an average premium of $1.03 apiece. Investors long the calls are poised to profit should shares increase 4.7% over the current price of $38.22 to surpass the average breakeven point to the upside at $40.03 by expiration day. Trading traffic in near-term call options is heaviest at the higher August $40 strike where more than 13,000 contracts changed hands by 12:25 pm ET. It looks like bulls purchased roughly 8,800 of the August $40 strike calls for an average premium of $0.78 a-pop. Call buyers at this strike make money if, by expiration, RRC’s shares rally 6.7% to trade above the average breakeven price of $40.78. The surge in demand for option contracts on Range Resources Corp. fueled a 10.2% increase in the stock’s overall reading of options implied volatility to 44.02.

Medco Health Solutions Inc. (NYSE:MHS) Near-term bearish options investors honed in on August contract puts this morning with shares of the healthcare company trading 3.95% lower on the day to trade at $47.34 as of 11:10 am ET. Medco’s shares fell as much as 5.2% earlier in the session to touch down at a new 52-week low of $46.70. Shares have declined more than 19.2% since July 15, 2010, when the stock traded at a high of $57.82, to reach today’s low point of $46.70. Investors expecting the price of the underlying shares to head lower ahead of expiration day next month purchased approximately 6,800 puts at the August $45 strike for an average premium of $0.75 per contract. Put buyers are positioned to make money should Medco’s shares fall another 6.5% from the current price of $47.34 to breach the effective breakeven point at $44.25 by expiration. The demand for put options on MHS helped lift the overall reading of options implied volatility on the stock 15.5% to 30.74% by 11:20 am ET.

Hospira, Inc. (NYSE:HSP)The sharp pullback in the price of Hospira’s shares today attracted the attention of contrarian options investors who appear to be initiating bullish stances on the stock in order to reel in profits should the price of the underlying stock rebound by September expiration. Shares of the pharmaceuticals firm declined as much as 9.7% this morning to secure an intraday low of $51.30 following the release of its second-quarter earnings report. HSP posted net income, excluding one-time items, of $0.86 a share, which beat average analyst expectations of $0.79 a share. However, the firm did not change its 2010 earnings forecast and the price of its shares plunged on concerns performance could be weaker in the second half of the year. Hospira’s shares are currently down 7.00% to stand at $52.83 as of 11:50 am ET. Contrarians refusing to buy into the pessimism just yet opted instead to buy call options in the September contract. Investors hoping to see shares rally in the next couple of months purchased approximately 2,500 calls at the September $55 strike for an average premium of $1.25 per contract. Call buyers are positioned to profit should Hospira’s shares surge 6.5% over the current price of $52.83 to surpass the average breakeven point to the upside at $56.25 by expiration day. We note that HSP’s shares were trading as high as $58.45 yesterday.

Chico’s FAS, Inc. (NYSE:CHS)Optimistic options players are buying calls on the national specialty retailer of private branded women’s clothing and accessories today perhaps to get in on the ground floor of what could wind up being a significant rebound in the price of its shares. CHS’s shares plunged 12.7% on Tuesday from an intraday high of $10.49 to an intraday low of $9.16 after it was added to Goldman Sachs’ conviction sell list. Shares of the retailer inched slightly higher by 0.10% today to trade at $9.41 by 12:40 pm ET. Investors itching for a near-term resurgence in the value of CHS shares scooped up approximately 2,400 calls at the August $10 strike for an average premium of $0.29 apiece. Call buyers make money as long as the clothing retailer’s shares surge 9.35% over the current price of $9.41 to exceed the average breakeven point on the calls at $10.29 ahead of August expiration.