Tuesday Options Brief: HANS, SPRD, MR & APO

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Includes: APO, MNST, MR, SPRD
by: Interactive Brokers

Hansen Natural Corp. (HANS) The maker of brand name energy drink Monster® and other beverages popped up on our scanners this morning due to heavy call option activity in the September contract. It looks like one investor is taking profits on a previously established position and extending bullish sentiment on the stock by rolling calls up to a higher strike price. We reported a similar strategy in Hansen Natural Corp. calls back on June 20. It’s possible the transaction observed this morning is the work of the same investor swooping in once again to harvest gains as shares in HANS extend a monster-rally. Hansen Natural Corp.’s shares increased as much as 2.2% today to secure a record high of $80.85. The stock has increased more than 112% in the past 52-weeks alone. Turning our attention back to options-land, it appears the trader sold 10,000 calls at the September $80 strike at a premium of $5.80 apiece. Open interest suggests the calls were originally purchased 5,000 contracts at a time, on June 16 and June 20, for an average premium of around $2.45 each. The sale of the calls for $5.80 a-pop today suggests the trader reeled in average net profits of $3.35 per contract. The bullish strategy on Hansen Natural Corp. seems to be working like a charm, and the investor responsible for the action shows no signs of fatigue. It looks like the trader picked up 10,000 fresh calls at the September $90 strike for an average premium of $2.35 per contract. The investor may eventually roll out of this position too, but if held to expiration, the bullish player stands ready to make money on the new stance if shares rally another 14.2% over today’s record high to exceed the effective breakeven price of $92.35. Hansen Natural Corp. reports second-quarter earnings after the final bell on August 4. Shares in the drink maker spiked roughly 11.5% following the company’s positive earnings surprise in early May.

Spreadtrum Communications, Inc. (NASDAQ:SPRD)Frenzied options trading ensued on Shanghai-based chip maker Spreadtrum Communications today on reports Hong Kong-based Muddy Waters Research has a short position in the company and has contacted Spreadtrum’s CEO on concerns over material misstatements in SPRD’s financial reports. Options volume generated on SPRD today has nearly surpassed overall open interest on the stock of 115,284 contracts as of 1:00pm on the East Coast. The number of options traded on Spreadtrum thus far in the session just topped 113,800 contracts. The chip maker’s shares nose-dived just after 11:00am this morning, falling as much as 33.7% to $8.59 in less than one hour. But, it looks like SPRD’s shares have bounced back almost as quickly with shares currently down 0.45% on the day at $12.89 as of 1:10pm. The initial panic spurred investors to the options market where participants piled into July contract puts. Volume in out-of-the-money puts jumped to more than twice that of open interest at many strikes. Traders purchased some 2,600 puts as low as the July $5.0 strike for an average premium of $1.50 a-pop. The sharp recovery in the price of the underlying stock now has these put options trading around $0.30 each. Put buying seemed to be the most popular strategy earlier in the session, although call selling was observed as well. Meanwhile, it looks like contrarians may have purchased some 2,300 calls at the July $15 strike today for an average premium of $0.41 a-pop. Premium on the call has recovered up to $0.75 apiece this afternoon. Options volume continues to climb on SPRD, but it will be interesting to see how open interest on the stock shifts. Are late-comers opening positions to hedge or speculate on Spreadtrum? Or, are traders closing out positions initiated earlier in the day? Options implied volatility on the stock slumped 16.5% to 155.27% by 1:25pm, and continues to come off after spiking to 244.21% this morning during the stock’s freefall.

Mindray Medical International Ltd. (NYSE:MR) Options activity on medical devices maker Mindray Medical International suggests one strategist may be taking a bullish stance on the stock ahead of the China-based company’s second-quarter earnings report on August 8. Shares in Mindray are up 3.4% this afternoon to stand at $27.46 as of 12:20pm in New York trade. The investor appears to have sold 1,500 puts at the August $25 strike for a premium of $0.80 each in order to purchase the same number of calls up at the August $30 strike at a premium of $0.65 apiece. The trader pockets a net credit of $0.15 per contract, and keeps the full amount of premium as long as shares exceed $25.00 through expiration. Additional profits are available to the investor if the price of the underlying stock jumps 9.25% over the current price of $27.46 to surpass the effective breakeven point at $30.00 by expiration day in August. If shares retreat rather than rally, the trader may have 150,000 shares of the underlying put to him in the event the puts land in-the-money at expiration.

Apollo Global Management LLC (NYSE:APO) Early-morning profit taking in Apollo Global Management options caught our eye today with shares in the name rising as much as 4.2% to $16.80. It looks like an investor that originally purchased 1,340 calls at the August $15 strike last week for an average premium of $1.45 each is now selling the contracts for $1.90 a-pop. Net profits enjoyed on the sale amount to $0.45 apiece, or a total of $60,300. The trader walks away with positive returns in under one week, but what, if anything, does the decision to unravel the position today suggest about the investor’s expectations for Apollo’s performance in the weeks ahead? The investor may simply be happy to exit with profits in hand and the freedom to employ his capital elsewhere. Alternatively, the trader could be banking gains while throwing in the towel on Apollo ahead of the company’s second-quarter earnings report on August 11. August contract call options expire the week following Apollo Global Management’s earnings announcement.