Friday Options Brief: TSN, PSS, XRT, BX

Includes: BX, PSS, TSN, XRT
by: Interactive Brokers

Tyson Foods, Inc. (NYSE:TSN) – Call options on the food products company are a hot commodity this morning for bullish players positioning for a near-term rally in the price of the underlying shares. Tyson Foods’ shares rallied as much as 1.7% at the start of the session to an intraday high of $16.31. Shares of the producer and distributor of chicken, beef, pork, prepared foods and other products are perhaps higher following an upgrade to Ba2 from Ba3 by ratings agency, Moody’s Investors Service, on Thursday. Moody’s also lifted Tyson’s outlook to ‘positive’ from ‘stable’, citing continuing debt reduction for the food firm. Optimistic options investors breakfasted on call options, buying up roughly 5,600 calls at the September $17 strike for an average premium of $0.16 each. Call buyers at this strike are prepared to make money should Tyson’s shares surge 5.2% over today’s high of $16.31 to surpass the average breakeven price of $17.16 by September expiration. Bullish sentiment spread to the October $17.5 strike where traders purchased some 2,100 calls at an average premium of $0.33 apiece. These traders are poised to profit if TSN shares jump 9.3% to trade above the breakeven point to the upside at $17.83 ahead of expiration day in October. Increased investor demand for calls helped fuel a 20.4% hike in the stock’s overall reading of options implied volatility to 37.73% as of 11:00 am ET.

Collective Brands, Inc. (NYSE:PSS) – Long-term bullish action in Collective Brands’ LEAPs inspired a sense of déjà vu this morning as the same strategy observed today was also implemented on the holding company for Payless and Stride Rite during afternoon trading on Thursday. Collective Brands’ shares are currently up 1.75% to stand at $12.73 as of 11:20 am ET. The stock hit a new 52-week low of $12.41 yesterday after posting disappointing second-quarter results after the closing bell on Wednesday. A bullish risk reversal enacted by a contrarian strategist in the October contract in the previous trading session appears to be the same tactic utilized in the longer-dated January 2012 contract by optimistic players in the first 30 minutes of today’s session. Traders hoping Collective Brands’ shares continue to rally sold 5,000 puts at the January 2012 $10 strike for premium of $1.75 apiece and purchased the same number of calls at the higher January 2012 $12.5 strike at a premium of $3.30 each. The net cost of the bullish risk reversal amounts to $1.55 per contract. Thus, investors stand ready to profit should PSS shares jump 10.4% over the current price of $12.73 to surpass the effective breakeven price of $14.05 by expiration day in January 2012. Collective Brands was downgraded to ‘neutral’ from ‘positive’ with a target share price of $23.00 by analysts at Susquehanna this morning.

SPDR S&P Retail ETF (NYSEARCA:XRT) – The purchase of a plain-vanilla debit call spread on the retail ETF indicates on options investor is itching for a significant rally in the price of the underlying shares by December expiration. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, are up 1.20% to stand at $38.65 minutes before 12:00 pm ET. On Thursday, shares of the fund were helped higher by better-than-expected August same-store sales data. The bullish options strategist positioned for continued appreciation in XRT shares by picking up 5,000 calls at the December $41 strike for a premium of $1.36 each, spread against the same of the same number of calls at the higher December $45 strike at a premium of $0.33 a-pop. The net cost of the spread amounts to $1.03 per contract. Profits start to accumulate for the investor if the fund’s shares rally 8.745% over the current price of $38.65 to surpass the effective breakeven price on the spread at $42.03 by expiration. Maximum potential profits of $2.97 per contract pad the investor’s wallet if shares of the ETF surge 16.4% in the months leading up to expiration in December. Shares of the fund earlier increased as much as 2.95% to secure an intraday high of $39.31 within the first 15 minutes of the trading session. The XRT’s shares last traded above $45.00 – or the price at which the call spreader realizes maximum profits – on April 27, 2010.

The Blackstone Group, L.P. (NYSE:BX) – Asset manager and financial advisory services provider, Blackstone Group, was the target of long-term bullish options traders right out of the gate this morning. BX shares rallied as much as 2.45% thus far in the session to touch an intraday high of $10.48. The overwhelming majority of trading took place at the January 2012 $15 strike where bullish investors appear to have purchased approximately 18,000 calls at an average premium of $0.86 apiece. Open interest at that strike is sufficient to cover today’s volume, however, upon further examination; it looks like interest was generated by like-minded call buyers at the end of July. Investors purchasing the calls likely expect Blackstone’s shares to appreciate significantly by expiration. Today’s call buyers are prepared to make money should the asset manager’s shares surge 51.3% to surpass the average breakeven price of $15.86 by January 2012 expiration.