Tuesday Options Brief: HAL, AOL, CQB & XRT

|
Includes: AOL, CQB, HAL, XRT
by: Interactive Brokers

Halliburton Co. (NYSE:HAL) Options activity on Halliburton suggests one strategist seized the opportunity to take a bullish stance on the provider of oil equipment and services this morning on the heels of a 27.5% dip in the price of the underlying during the past three weeks. Shares in Houston, TX-based Halliburton recovered 4.8% of their value thus far in the session to trade at $44.46 as of 11:45 am ET. It looks like the options player is positioned for limited, albeit potentially substantial, bullish movement in the price of the underlying through September expiration. The investor initiated a ratio call spread, buying 5,000 calls at the September $50 strike for a premium of $1.21 each, and selling 10,000 calls up at the September $55 strike at a premium of $0.425 apiece. Net premium paid to initiate the spread amounts to $0.36 per contract, thus preparing the trader to profit should shares in HAL rally another 13.3% over the current price of $44.46 to surpass the effective breakeven price of $50.36 by expiration next month. Maximum potential profits of $4.46 per contract pad the investor’s wallet in the event that Halliburton’s shares surge 23.7% to settle at $55.00 at September expiration. HAL’s shares reached a 52-week high of $57.77 on July 25 before the market meltdown pulled the price of oil and oil and gas companies down with it.

AOL, Inc. (NYSE:AOL)U.S. stocks are rallying ahead of the FOMC statement this afternoon, recovering somewhat from Monday’s harrowing selloff, but investors in global web services provider AOL suffered more pain today as shares in the name failed to join in the broad market gain. AOL’s shares plunged 22.0% today to $11.75, the lowest traded price since the company’s 2009 spinoff from Time Warner Inc., after the company lowered its estimates for full year earnings. Investors expecting the price of the underlying to continue to pull back snapped up put options across multiple expiries. Meanwhile, some strategists that prepared for the possible post-earnings report slump appear to have taken profits off the table. Bearish positioning in August $19 strike put options ahead of the company’s second-quarter earnings report seems to have paid off handsomely for investors that likely paid an average premium of $0.80 per contract for some 900 contracts at that strike back on July 18. The nosedive in the price of the underlying spurred profit-taking in the August $19 strike put where around 840 contracts were sold for an average premium of $6.48 apiece. Traders positioning to profit from AOL’s pain in the weeks and months ahead picked up fewer than 500 in-the-money puts at the August $14 and $12 strikes for average premiums of $1.11 and $0.56 apiece, respectively. Heavier volume was detected in longer-dated puts at the January 2012 $10 strike where some 1,400 contracts were purchased at a premium of $0.64 a-pop. Put buyers at this strike profit in the event that AOL’s shares slide another 20.3% to breach the effective breakeven price of $9.36 by expiration next year. Options implied volatility on the stock rose 9.9% to 58.34% by 1:10 pm in New York trade.

Chiquita Brands International, Inc. (NYSE:CQB) Bulls are still bananas for Chiquita Brands call options, and are perhaps more so now given the recent acceleration to the downside in the price of the underlying stock. CQB shares spent the better part of 2011 trending lower, and as of their lowest point on Monday, had lost 52.2% since February 28. Yet, Chiquita has popped up on our scanners on occasion due to seemingly outright bullish call activity. Shares in the international marketer and distributor of fresh produce earlier increased 11.4% over Monday’s fresh 2-year low of $8.30 to touch an intra-session high of $9.25. Investors expecting shares in Chiquita to continue to rebound honed in on the January 2012 $11 strike where more than 2,600 calls changed hands against previously existing open interest of $15 contracts. It looks like traders purchased most of the call options for an average premium of $0.81 a-pop. Call buyers profit if shares in Chiquita surge 27.7% over today’s high of $9.25 to exceed the average breakeven price of $11.81 by expiration day in January.

SPDR S&P Retail ETF (NYSEARCA:XRT) Heavy volume in September contract call options on the retail SPDR may be a sign some investors are gearing up for a rebound in the sector ahead of expiration next month as consumers decide whether to open their wallets during the back-to-school shopping season. Shares in the XRT, an exchange-traded fund that tracks the performance of the S&P Retail Select Industry Index, increased 2.45% to $45.79 in early-afternoon trade. As of Monday, the price of the underlying fund had fallen more than 21.0% in the most recent five weeks. The discount in the value of the XRT may be all some strategists needed to spur them back into the retail sector. More than 32,000 calls changed hands at the September $48 strike against previously existing open interest of 355 contracts. The bulk of the volume traded to the middle of the market, but was priced far closer to the ask at $1.50 per contract. Buyers of the calls stand prepared to profit should shares in the XRT gain another 8.1% to exceed the breakeven price of $49.50 by September expiration. On the flip side, traders could be selling rather than buying the calls, in which case the $1.50 premium per contract is money in the bank as long as shares in the XRT fail to break out above $48.00 come expiration day.