Tuesday Options Brief: V, CLGX, JEF & TEVA

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 |  Includes: CLGX, LUK, TEVA, V
by: Interactive Brokers

Visa, Inc. (NYSE:V) Volume in Visa call options jumped straight out of the gate this morning, with shares in the electronic payments company now trading 5.2% higher on the day at a new 52-week high of $94.75 as of 12:55 pm ET. The company said Monday it has partnered with Internet search giant, Google, to allow Visa account-holders to pay for store purchases with Android smartphones. Activity in call options that expire at the end of the week suggest some traders are positioning for the price of Visa’s shares to extend gains through Friday. Investors picked up in- and out-of-the-money calls in the Sept. ’23 weeklies, but focused their efforts most aggressively at the Sept. $95 call, driving volume at that strike up past 11,500 contracts. The majority of the Sept. $95 strike calls appear to have been purchased for an average premium of $0.46 each. Call buyers profit at expiration this week if shares in Visa exceed the average breakeven price of $95.46. Bullish bias in the weeklies spread to the Sept. $97.5 strike where investors paid an average premium of $0.22 apiece for more than 650 calls.

Longer-dated October contract call options are also popular on Visa this afternoon as traders position for fresh 52-week highs in the weeks ahead. Buyers out-transacted sellers in the Oct. $92.5 and $95 strike call, while mixed trading was seen in the higher Oct. $100 strike call option. Fresh prints in the Oct. $105 strike call are notable as upwards of 2,500 calls changed hands at that strike against previously existing open interest of just 3 contracts. It looks like most of these contracts were purchased for an average premium of $0.25 a-pop. Investors long the Oct. $105 strike call profit at expiration next month if shares in Visa surge 11.1% over the current price of $94.75 to trade above the average breakeven point at $105.25. Options implied volatility on Visa is up 2.9% to arrive at 33.59% just after 1:30 pm in New York.

CoreLogic, Inc. (NYSE:CLGX) Activity in CoreLogic stock and options this morning suggests one investor is selling covered calls on the provider of data, analytics and services to mortgage originators and servicers, financial institutions, businesses and government. Shares in the Santa Ana, California-based company are up 1.45% at $11.97 as of 11:40 am ET. It looks like the buy/write strategist purchased 100,000 shares of the underlying stock for $11.85 each, and sold 1,000 calls at the October $12.5 strike to take in premium of $0.60 apiece. The sale of the call options effectively reduces the $11.85 a share price required to get long the stock to $11.25 a share. Selling covered calls provides an exit strategy to the trader should shares in CoreLogic exceed $12.50, and the calls land in-the-money at expiration next month. The investor may have 100,000 shares called from him at $12.50 each, which implies maximum possible gains of 11.1% over the trader’s effective $11.25 a share entry point. The strategist may also retain the long stock position, secured at the reduced price of $11.25 a share by premium received on the sale of the options, should the calls land out-of-the-money at expiration in October. CoreLogic’s shares last traded above $12.50 back on August 4, 2011.

Jefferies Group, Inc. (JEF)The investment bank’s shares are up 2.55% at $14.48 just before 12:00 pm in New York following the company’s third-quarter earnings report released ahead of the opening bell this morning. Excluding the acquisition of Prudential Bache’s global commodities group, Jefferies earned $0.10 a share in the third quarter, down from $0.22 a share in the same period last year, and well-below analyst estimates of $0.20 a share. Options activity on the stock indicates some traders expect today’s post-earnings rally in Jefferies Group’s shares to be short lived. More than 3,100 puts changed hands at the October $14 strike against previously existing open interest of just 167 contracts. It looks like nearly all of the puts were purchased by one strategist at a premium of $0.75 a-pop. The put buyer may be taking an outright bearish stance on the stock in the expectation that shares may slide to fresh multi-year lows in the next several weeks. Alternatively, the puts may represent downside protection should the investor hold a long position in JEF stock. If the former scenario is closer to reality, the bearish player profits at expiration in October as long as shares in Jefferies drop 8.5% from the current price of $14.48 to breach the effective breakeven point on the downside at $13.25. JEF’s shares last dipped below $13.25 back in March 2009.

Teva Pharmaceuticals Industries, Ltd. (NASDAQ:TEVA) Call options on the world’s largest generic drug maker are seeing heavier-than-usual volume this morning. It looks like some strategists may be looking for a substantial recovery in Teva’s shares in the next couple of months to November expiration. The Israeli company’s shares are currently down 2.2% at $36.90, bringing total declines in the price of the underlying to 35.0% since the end of January. Teva was recently cut to ‘market perform’ from ‘outperform’ at Clal Finance Brokerage, Inc. Investors traded more than 5,300 call options at the November $40 strike today, against previously existing open interest of 2,638 contracts. Options traders appear to have purchased the majority of the calls for an average premium of $0.88 apiece. Call buyers profit if shares in Teva Pharmaceuticals Industries surge 10.8% to surpass the average breakeven price of $40.88 by November expiration day. Meanwhile, the purchase of the 1,000-lot Oct. $37.5/$40 call spread for a net premium of $0.77 per contract points to nearer-term optimism that shares in the generic drug maker may increase. The call spread yields maximum potential profits of $1.73 per contract if shares in Teva top $40.00 by expiration day next month. Teva’s President and CEO, William Marth, presents at the UBS Global Life Sciences Conference in New York today.