Thursday Options Brief: NRG, SCG & STX

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Includes: NRG, SCG, STX
by: Interactive Brokers

NRG Energy, Inc. (NYSE:NRG) The wholesale power generation company popped up on our ‘hot by options volume’ market scanner this morning due to heavier-than-usual trading traffic in its call options. Shares in NRG Energy, Inc. are down 2.7% at $21.66 in early-afternoon trade, outperforming the S&P 500 Index which is off 3.7%. Investors driving up September contract call volume on the stock do not expect shares in the Princeton, NJ-based company to rebound with any conviction ahead of expiration next month. Options players exchanged more than 4,700 calls at the September $23 strike against previously existing open interest of just 875 contracts. It looks like all of the contracts were sold at a premium of $0.50 each. Call sellers walk away with the full $0.50 in premium as long as the options expire worthless with shares trading below $23.00 at expiration. Selling spread to the September $24 strike where some 244 calls sold for a premium of $0.30 apiece. If these are naked shorts, traders face losses should the stock rally above the effective breakeven prices of $23.50 and $24.30 at expiration, respectively.

SCANA Corp. (SCG) – The holding company for subsidiaries engaged in the generation and sale of electricity to retail customers is a bright spot in an otherwise dark day for equities. Shares in Cayce, SC-based Scana Corp. are currently up 1.5% at $39.18 after dealReporter cited industry sources that said the company may consider putting itself up for sale. One options strategist expecting shares in the name to rally in the months ahead initiated a debit call spread, buying 1,500 calls at the November $40 strike for a premium of $1.10 each, and selling the same number of calls up at the November $45 strike at a premium of $0.11 apiece. Net premium paid to initiate the transaction amounts to $0.99 per contract, and positions the investor to profit should shares in Scana Corp. rise 4.6% over the current price of $39.18 to surpass the effective breakeven point at $40.99 by expiration day in November. Maximum potential profits of $4.01 per contract pad the investor’s wallet if SCG’s shares jump 14.9% to trade above $45.00 at expiration. Options implied volatility on Scana is off its highest levels of the session, but still stands 28.1% higher on the day at 24.6% as of 11:50 am ET.

Seagate Technology PLC (NASDAQ:STX)Shares in disc drive manufacturer Seagate Technology plunged 10.9% to as low as $10.42 during the first half of the session, joining fellow tech-sector stocks in leading the day’s market decline. Dell’s gloomy sales forecast on Wednesday and rising fears that recession is just around the corner helped drive shares in the computer hardware company sharply lower. It looks like one options strategist may have thrown in the towel on Seagate today, cutting his losses and taking in premium still left on the table, or is otherwise outright selling calls on the stock. The trader appears to have sold around 15,000 calls at the December $11 strike for a premium of $1.25 per contract. Open interest at that strike, which currently stands at 15,056 contracts, suggests at least 11,800 calls were purchased for an average premium of $1.66 apiece on Tuesday and Wednesday of last week. Around 7,900 calls traded to the middle of the market on those dates, as well. The call seller acting today could be closing out the bullish stance on the stock in the expectation that call premium will continue to erode as the stock heads lower. Alternatively, the trader may be taking an outright bearish stance on the stock by initiating opening sales of the options. In the latter scenario, the investor keeps the full $1.25 per contract in premium as long as STX shares fail to exceed $11.00 come expiration day in December. Options implied volatility on the stock is up 24.1% at 66.25% as of 12:10 pm in New York.