Seeking Alpha
Profile| Send Message| ()  

Brookdale Senior Living, Inc. (BKD) – Shares of the operator of senior living communities are up 18.7% at $19.74 this afternoon after earlier rallying as much as 20.4% to an intraday high of $20.03. Brookdale’s shares jumped after Ventas Inc. agreed to purchase the real estate assets of Atria Senior Living Group for $1.5 billion in cash and stock. The acquisition sent shares in Brookdale, the largest owner of senior communities in the U.S., higher on sentiment the stock is undervalued and spurred bullish trading in its options today. One options strategist utilized longer-dated calls and puts to position for shares to continue their ascent. The trader purchased 1,745 calls at the January 2011 $20 strike at a premium of $1.60 each, and sold the same number of puts out at the April 2011 $17.5 strike at a premium of $1.30 apiece. The cost of buying the call options is reduced to just $0.30 per contract, thus positioning the investor to make money if BKD’s shares rally above the effective breakeven price of $20.30 ahead of expiration day in January. The sale of the put options is a nice way to cheapen the cost of taking a bullish stance on Brookdale, but is not without its risks. The trader could have 174,500 shares of the underlying stock put to him at $17.50 each if the puts land in-the-money at expiration in April 2011. But, the $1.30 premium per contract received for bearing this risk appears to be a favorable trade off for this bullish player.

Coach, Inc. (COH) – The luxury retailer of handbags and accessories popped up on our scanners this morning after one investor dabbled in near-term put options. Coach’s shares are currently up 0.50% to stand at $44.64 as of 12:55 p.m., but earlier rallied more than 1.20% to touch an intraday high of $44.96. The near-term pessimistic play observed in the November contract today may be the work of an investor securing downside protection on a long position in the underlying shares, or could represent an outright bearish bet on the stock ahead of earnings. Coach is scheduled to report results for the first quarter ahead of the opening bell on October 26, 2010. The investor established a ratio put spread, buying 2,000 lots at the November $44 strike for a premium of $1.48 each, and selling 4,000 puts at the lower November $42 strike at an average premium of $0.765 apiece. The put player pockets a net credit of $0.05 per contract on the spread, and keeps the full amount if Coach’s shares exceed $44.00 through expiration day. Additional profits start to accumulate should shares slip below $44.00. Maximum potential profits of $2.10 per contract, including the net credit received, are available to the investor if COH’s shares plunge 5.90% from the current price of $44.64 to settle at $42.00 at expiration. The sale of twice as many lower strike put options expose the trader to losses in the event that shares fall 10.6% to trade below the effective lower breakeven point at $39.90 by expiration day.

CenterPoint Energy, Inc. (CNP) – It looks like one investor has scooped up a large chunk of out-of-the-money call options on CenterPoint Energy this afternoon in order to establish a relatively cheap bullish stance on the stock ahead of the firm’s third-quarter earnings report on the morning of October 28, 2010. Shares of the public utilities holding company are currently down 0.55% to stand at $16.30 as of 2:20 p.m. in New York. CenterPoint appeared on our ‘hot by options volume’ market scanner after one trader purchased 5,000 calls at the December $17.5 strike for a premium of $0.15 per contract. The investor is poised to profit should the price of the underlying stock surge 8.3% to surpass the effective breakeven price of $17.65 by December expiration day. Shares in CenterPoint must blow straight past the current 52-week high of $16.56, which was set yesterday, in order to come close to the breakeven point on the calls.

Jones Apparel Group, Inc. (JNY) – The purchase of a three-legged bullish options combination spread on the manufacturer and marketer of a wide range of well-known brands of women’s clothing, accessories and footwear, suggests one strategist expects the price of the underlying stock to rally. Jones Apparel Group is scheduled to report third-quarter earnings ahead of the opening bell on October 27, 2010. Shares of the firm that represents brands such as Barneys New York and Anne Klein are up 0.85% to stand at $19.16 just after 11:00 a.m. in New York. Jones Apparel Group popped up on our ‘hot by options volume’ market scanner in the first 30 minutes of the session after one trader sold 2,000 puts at the February 2011 $16 strike for a premium of $0.89 each, purchased 2,000 in-the-money calls at the higher February 2011 $19 strike at a premium of $2.29 apiece, and sold the same number of calls at the February 2011 $22.5 strike for premium of $0.85 a-pop. The net cost of the transaction amounts to $0.55 per contract and positions the investor to make money should JNY’s shares exceed the effective breakeven price of $19.55 by expiration day. Maximum potential profits of $2.95 per contract are available to the investor if the value of the underlying stock jumps 17.4% over the current price of $19.16 to trade above $22.50 by February expiration. A similar three-legged bullish transaction took place on JNY back on September 15, 2010. That trader sold the Feb. 2011 $15 puts instead of the $16 strike contracts in order to buy the same Feb. 2011 $19/$22.5 strike call spread, 2000 times, at a net cost of $0.35 per contract. Expiration for these options is a long way off, but the trades still position investors to benefit from upward movement in JNY shares if the earnings report next week beats expectations.

Starbucks Corp. (SBUX) – Options traders populating the roaster and retailer of specialty coffee are all-abuzz this morning with the price of the underlying shares fast approaching their current 52-week high of $28.37. Bullish players hoping to see shares in SBUX reach new highs by November expiration are scooping up in- and out-of-the-money calls and selling put options today. Starbucks’ shares are currently up 3.60% to arrive at $28.27 just before 11:25 a.m. in New York trading. Investors are exchanging more than 4.2 calls on the stock for each single put option in action thus far in the session. Bulls picked up approximately 1,900 in-the-money calls at the November $27 strike for an average premium of $1.31 each, while more than 13,000 in-the-money calls changed hands at the higher November $28 strike for an average premium of $0.68 apiece. Investors purchased some 2,300 calls at the November $29 strike at an average premium of $0.47 a-pop. Call buyers at this strike are prepared to make money should SBUX shares rally another 3.9% to trade above the average breakeven price of $29.47 by November expiration. More than 3,800 calls changed hands at the November $30 strike versus previously existing open interest of just 824 lots. Roughly 1,800 of those calls were purchased for an average premium of $0.25 apiece, which positions traders to profit if shares jump 6.6% to surpass the average breakeven point at $30.25 by expiration day. Optimistic options traders also sold 2,400 puts at the November $27 strike to take in premium of $0.74 each. Put sellers keep the full premium received as long as Starbucks’ shares exceed $27.00 through expiration day. They are apparently happy to have shares of the underlying stock put to them at an effective price of $26.26 in the event that the puts land in-the-money at expiration. Starbucks Corp. is slated to report its earnings for the fourth quarter after the market closes on November 4, 2010.

Xerox Corp. (XRX) – A sizable short straddle employed on the world’s number 1 supplier of digital printer and document management services indicates one options strategist is anticipating lower volatility in the price of Xerox Corp. shares through January 2011 expiration. Xerox’s shares are up 0.25% this morning to stand at $11.24. The firm reported slightly better-than-expected third-quarter earnings on Thursday morning and raised its outlook for this year and next, but one trader sees shares remaining flat for the next several months. The investor initiated a short straddle, selling 10,000 calls at the January 2011 $11 strike for a premium of $0.83 apiece, and shedding 10,000 puts at the same strike at a premium of $0.65 a-pop. Gross premium enjoyed on the sale amounts to $1.48 per contract. The trader keeps the full premium received on the transaction as long as Xerox’s shares settle at $11.00 at expiration. Some portion of the premium is safe in his wallet if XRX shares trade within the upper and lower breakeven prices of $12.48 and $9.52, respectively. Wayward shifts in the price of the underlying stock outside of these designated points will result in losses for the straddle seller. The investor may choose to unravel the position by buying back the short straddle at some point before expiration. Declines in the stock’s reading of options implied volatility, daily erosion in time value on the options, and stagnation in the price XRX shares will benefit this investor, and could result in profits if the sum of premiums on the January 2011 $11 strike calls and puts is less than $1.48.

Schlumberger, Ltd. (SLB) – Shares of the largest U.S. oilfield services company by sales rallied 4.60% this morning to $67.27 after the firm reported that its earnings more than doubled in the third quarter. Schlumberger earned $1.38 per share versus net income of $0.65 in the same quarter last year. Options investors burst straight out of the gate this morning to place near-term bullish bets on the company. Traders picked up roughly 3,700 calls at the November $67.5 strike for an average premium of $1.80 apiece. Call buyers at this strike make money if SLB’s shares rally another 3.00% to surpass the average breakeven point at $69.30 by expiration day next month. One optimistic individual initiated a call spread, buying 1,000 lots at the November $70 strike for an average premium of $0.76 each, and selling the same number of calls at the higher November $72.5 strike at an average premium of $0.29 a-pop. Net premium paid for the spread amounts to $0.47 per contract, positioning the trader to profit if shares rise 4.75% to trade above $70.47 by expiration. Maximum potential profits of $2.03 per contract are available to the spread-trader should Schlumberger’s shares jump 7.8% to exceed $72.50 ahead of expiration day in November. Finally, some cautious investors displayed a preference for SLB puts and picked up just over 1,000 lots at each of the November $65, $67.5 and $70 strikes. More than 1,700 deep in-the-money puts were picked up at the November $70 strike for a hefty premium of $4.00 each. These puts yield profits, or downside protection, should shares drop back below $66.00 by November expiration. SLB’s overall reading of options implied volatility is down 6.4% to stand at 27.65% following earnings.

Source: Friday Options Brief: BKD, COH, CNP, JNY, SBUX, XRX, SLB