Hasbro, Inc. (HAS) – Bullish options traders flocked to the maker of toys and games for the second day in a row today as shares in the name picked up as much as 2.15% to trade at an intraday high of $46.97. Plain-vanilla call buying on Hasbro caught our eye yesterday, while a more complex bullish scenario played out in July contract calls during the current session. It looks like one investor initiated a delta neutral transaction involving the sale of stock and purchase of out-of-the-money calls to position for a sharp rise in HAS shares by expiration. The trader appears to have sold 112,000 shares of the underlying stock at $46.77 each, marked against the purchase of 4,000 calls at the July $52.5 strike for a premium of $1.40 apiece, on a 0.30 delta. The risk profile of this combination of short stock and long calls is such that the investor benefits from declines in HAS shares because of the sale of stock. Further, the trader realizes substantially greater profits if shares shoot up toward the $52.50-level and beyond because of the growth in delta on the calls given such a move in the price of the underlying. The large size of the call position in relation to the short stock means the acceleration in value on those calls will be more than adequate to mitigate losses on the short stance in shares if the stock rallies. Hasbro reports fourth quarter earnings on February 7, 2011, before the market opens for trading.
Alaska Air Group, Inc. (ALK) – The provider of passenger air service as well as mail and freight services appeared on our ‘hot by options volume’ market scanner today due to bearish activity in February contract call options. Shares in Alaska Air Group fell 1.7% this afternoon to $61.87 by 2:45pm in New York trading. It looks like one trader enacted a credit call spread, selling roughly 1,500 calls at the February $65 strike for an average premium of $1.77 each, and buying about the same number of calls at the higher February $70 strike at an average premium of $0.67 apiece. The trader receives a net credit of $1.10 per contract on the spread and keeps the full amount of premium as long as Alaska Air’s shares fail to rally above $65.00 ahead of February expiration. Initiating the sale of the call spread indicates that the bearish investor expects the February $65 strike calls to expire worthless at expiration next month. The parameters of the transaction imply that the trader could start to lose money if the stock rallies 6.8% to trade above the average breakeven price of $66.10. The long stance in the higher strike call options caps maximum potential losses faced by the bearish player to $3.90 per contract. Shares in ALK would need to increase 13.1% over the current price of $61.87 to trade above $70.00 in order for the trader to absorb maximum possible losses on the position.
Live Nation Entertainment, Inc. (LYV) – A three-legged options transaction on the producer of live music concerts indicates one bullish investor expects shares in Live Nation Entertainment to rally significantly ahead of July expiration. Live Nation’s shares are up 0.20% this afternoon to stand at $11.28 as of 1:45pm in New York. The firm is slated to report earnings for the fourth quarter after the market closes on February 24, 2011. The optimistic options trader picked up 2,000 calls at the July $12.5 strike for a premium of $1.00 each, sold the same number of calls at the higher July $15 strike at a premium of $0.25 per contract, and sold 2,000 puts at the July $10 strike at a premium of $0.80 apiece. The investor responsible for the option combination play pockets a net credit of $0.05 per contract on the transaction, and keeps the credit as long as LYV shares exceed $10.00 through expiration day. Additional profits start to accumulate if the concert producer’s shares rally 10.8% over the current price of $11.28 to surpass the effective breakeven price of $12.50 by expiration day in July. Maximum potential profits of $2.55 per contract, which includes the $0.05 credit on the trade, pad the investor’s wallet in the event that Live Nation Entertainment’s shares surge 33.0% to exceed $15.00 before the July contracts expire. Shares in LYV last traded above $15.00 back in the early days of May 2010.
Genworth Financial Corp. (GNW) – Call options on the insurance company are in high demand today with shares in Genworth Financial Corp. rallying as much as 6.4% during the session to an intraday high of $14.77. Near-term bulls picked up in- and out-of-the-money calls to position for continued appreciation in the price of the underlying. GNW rallied in sympathy with MBIA after a New York appeals court threw out one of two lawsuits related to restructuring at the firm. Investors purchased approximately 4,000 now in-the-money calls at the January $14 strike for an average premium of $0.59 each. Call buyers at this strike profit if Genworth’s shares trade above the average breakeven price of $14.59 through January expiration. Optimism spread to the higher January $15 strike where some 7,500 calls were picked up for an average premium of $0.17 per contract. Higher-strike call coveters are poised to profit should shares rally 2.7% over today’s high of $14.77 to surpass the average breakeven point on the upside at $15.17 by expiration day. Genworth Financial is scheduled to report fourth-quarter earnings after the market closes on February 2, 2011. Buyers of roughly 1,500 in-the-money calls at the February $14 strike for an average premium of $0.99 each and 1,600 calls at the February $15 strike at a premium of $0.62 apiece, are well positioned to benefit from bullish movement in GNW shares should the firm post better-than-expected results next month.
ICICI Bank Ltd. (IBN) – The Mumbai-based provider of financial services popped up on our scanners this morning after bearish options traders initiated debit put spreads in the June contract. Shares in ICICI Bank are currently up 1.8% to stand at $45.53 as of 11:40am in New York. It looks like one or more investors purchased roughly 5,000 puts at the June $40 strike for an average premium of $2.44 each, and sold about the same number of puts at the lower June $30 strike at an average premium of $0.44 apiece. The average net cost of buying the spread amounts to $2.00 per contract. Investors stand prepared to make money should shares in ICICI Bank plunge 16.5% from the current price of $45.53 to breach the effective breakeven point on the downside at $38.00 ahead of expiration day. Maximum potential profits of $8.00 per contract are available if shares in IBN plummet 34.1% in the next 6 months to trade below $30.00 by June expiration. On Monday IBN shares touched an intraday low of $44.52, which marked a total decline of 23.5% in shares over the past couple of months since the stock hit a 52-week high of $58.22 on November 4, 2010. It looks like put players populating ICICI Bank options see the stock falling further despite the slight rebound in the price of the underlying shares today.
Cabot Oil & Gas Corp. (COG) – Trading in February contract call and put options on the independent oil and gas company this morning appears to be the work of an investor expecting shares in Cabot Oil & Gas Corp. to trade within a narrow range through expiration day next month. Cabot’s shares are currently up 2.25% to stand at $38.45 as of 12:15pm. The Houston, TX-based firm was rated new ‘hold’ with a 12-month target share price of $42.00 at Canaccord Genuity yesterday. It looks like the options strategist initiated a short straddle, selling 1,980 in-the-money calls at the February $37 strike for a premium of $2.22 each, and selling 1,980 puts at the same strike at a premium of $1.30 apiece. Gross premium pocketed on the transaction amounts to $3.52 per contract, which the investor keeps as long as Cabot’s shares settle at $37.00 at expiration. The amount of premium in the trader’s piggy bank erodes as shares move in either direction away from the strike price, and eventually turns to losses in the event that COG’s shares rally above the upper breakeven price of $40.52, or if shares slip beneath the lower breakeven point at $33.48, by the time the contracts expire in February.
Boston Scientific Corp. (BSX) – An options trader expecting shares of the medical devices maker to pull back ahead of February expiration initiated a bearish ratio put spread on the stock right out of the gate this morning. Shares in Boston Scientific are up 0.95% to arrive at $7.46 just before 12:00pm. The investor may be positioning for bearish movement in the price of the underlying shares ahead of the firm’s fourth-quarter earnings report, which is scheduled for release after the closing bell on February 2, 2011. The options player picked up 2,000 in-the-money puts at the February $8.0 strike for a premium of $0.78 each, and sold 4,000 puts at the lower February $7.0 strike at a premium of $0.21 a-pop. Net premium paid to initiate the ratio spread amounts to $0.36 per contract. Thus, the investor makes money if shares in Boston Scientific trade below the effective breakeven point to the downside at $7.64 by February expiration. Maximum potential profits of $0.64 are available to the trader should shares fall 6.2% from the current price of $7.46 to settle at $7.00 at expiration. The sale of twice as many lower strike contracts expose the investor to losses should shares in BSX fall more than he expects before the options expire next month. Losses start to accumulate if shares decline 14.7% to trade below the lower breakeven price of $6.36 by February expiration day.