Friday Options Brief: ARNA, EXPE, LPX, NLY

Includes: ARNA, EXPE, LPX, NLY
by: Interactive Brokers

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) – Shares of the biotechnology firm surged 14.6% this morning to a new 52-week high of $8.00 inspiring options investors to establish near-term bullish stances on the stock as the battle royal between the firm and its competitors to get an obesity drug on the market continues to rage. Arena’s shares are currently up 7.90% to stand at $7.53 as of 12:35 pm ET. Investors positioning for continued upward movement in the price of the underlying shares picked up 1,900 now in-the-money calls at the August $7.0 strike for an average premium of $0.93 apiece. In-the-money call coveters make money if Arena’s shares are trading above the average breakeven price of $7.93 at expiration. Buying interest spread to the higher August $8.0 strike where bulls purchased approximately 2,600 calls for an average premium of $0.58 each. Arena’s shares must rally 13.95% over the current price of $7.53 in order for August $9.0 strike call buyers to start to accumulate profits above the breakeven point to the upside at $9.58 by expiration day in August. Other optimists paid an average premium of $0.27 per contract to take ownership of 1,000 calls at the August $9.0 strike. Traders long the higher-strike calls profit as long as ARNA’s shares jump 23.1% to surpass the breakeven price of $9.27 by August expiration. Options traders exchanged more than 46,900 calls on the stock by 12:42 pm ET. Approximately 2.35 calls changed hands on Arena for each single put option in action thus far in the trading session.

Expedia, Inc. (NASDAQ:EXPE) – Online travel company Expedia popped up on our ‘hot by options volume’ market scanner in the first half of the trading day due to near-term activity in both calls and puts. Expedia’s shares surged 9.5% to touch an intraday high of $23.08 on news the firm reported earning second-quarter net income of $0.44 a share, which exceeded the average analyst forecast of $0.42 a share, after the closing bell on Thursday evening. EXPE’s shares are currently up 7.40% on the day at $22.63 as of 12:50 pm ET. Bullish players hoping to see Expedia’s shares extend gains scooped up approximately 1,100 now in-the-money calls at the August $22.5 strike for an average premium of $0.95 each. Call buyers stand ready to profit should the largest online travel company’s shares rally another 3.6% to surpass the average breakeven price of $23.45 by August expiration day. Meanwhile, August $22.5 strike put options were also in demand. Approximately 1,700 puts were purchased at the August $22.5 strike for an average premium of $0.98 apiece. Perhaps put buyers are long the stock and are attempting to lock in share price gains enjoyed post-earnings. In this scenario, downside protection kicks in should Expedia’s shares fall 4.9% from the current price to breach the breakeven point on the downside at $21.52 by expiration. Otherwise, investors may be buying the puts outright because they expect shares to reverse course ahead of expiration day next month. Expedia’s overall reading of options implied volatility shrank 13.6% to 38.60% post-earnings.

Louisiana-Pacific Corp. (NYSE:LPX) – Bearish players dominated trading in Louisiana-Pacific options today after the manufacturer of building materials posted lower-than-expected second-quarter profits ahead of the opening bell this morning. LPX shares fell as much as 9.9% to touch down at an intraday low of $7.28 as the firm’s reported net income of $0.17 a share failed to meet average analyst expectations of $0.19 a share. A number of investors appear to have thrown in the towel on Louisiana-Pacific by shedding near-term call options. Traders sold approximately 2,500 calls at the August $7.5 strike for an average premium of $0.35 each. Call activity was heaviest at the August $9.0 strike where it looks like investors shed roughly 26,000 calls at an average premium of $0.07 a-pop. Investors could be selling-to-close previously established long bullish positions on LPX, which may have been initiated ahead of this morning’s earnings release. Alternatively, traders could be selling the calls outright in the expectation they will keep the $0.07 average premium per contract should the August $9.0 strike calls fail to land in-the-money at expiration. The overall reading of options implied volatility on the building materials maker fell 24.9% post-earnings to 63.29% as of 12:10 pm ET.

Annaly Capital Management, Inc. (NYSE:NLY) – It looks like one options strategist is bracing for bearish movement in the price of the mortgage REIT’s shares through October expiration. Annaly’s shares slipped 0.25% lower to $17.47 by 11:40 am ET. The trader appears to have purchased 7,500 puts at the October $16 strike for an average premium of $0.38 each, spread against the sale of 7,500 puts at the lower October $15 strike for an average premium of $0.18 apiece. Net premium paid to establish the put spread amounts to $0.20 per contract. Thus, the investor responsible for the transaction is prepared to profit should Annaly’s shares decline 9.55% to trade below the effective breakeven price of $15.80 by expiration day. Maximum potential profits of $0.80 per contract are available to the put spreader as long as NLY’s shares plummet 14.1% to $15.00 ahead of October expiration