Tuesday Options Brief: INTC, SKUL, CAM & PAAS

by: Interactive Brokers

Intel Corp. (NASDAQ:INTC) Shares in the world’s largest chipmaker extended losses today, falling 2.25% to $23.46 in the first half of the session, following Intel’s announcement on Monday that fourth-quarter revenue would be lower than previously estimated due to shortages in hard disk drives. A sizable bearish put spread initiated in the July 2012 contract this morning may be one investor’s strategy to benefit from possible sharp share price erosion over the next seven months. It looks like the trader purchased a roughly 10,000-lot July 2012 $23/$17 put spread for a net premium of $1.60 per contract. The investor responsible for the transaction may profit at expiration in the event that Intel’s shares drop 8.8% to trade below the effective breakeven point on the spread at $21.40. Maximum potential profits of $4.40 per contract are available on the trade should the chipmaker’s shares plummet 27.5% to settle below $17.00 at expiration day next year. Shares in INTC last traded below $17.00 back in July 2009. The company is scheduled to report fourth-quarter earnings on January 19, 2012.

Skullcandy, Inc. (NASDAQ:SKUL) Bearish activity in Skullcandy options suggests traders are positioning for shares in the maker of headphones and other fashionable electronics accessories to pull back ahead of expiration next month. Shares in the Park City, Utah-based company earlier fell 5.5% to $11.79, the lowest traded price since Skullcandy had its IPO back in July. Investors bracing for SKUL’s shares to continue to hit fresh lows in the next five weeks snapped up more than 730 in-the-money puts at the Jan. 2012 $12.5 strike for an average premium of $1.47 apiece. Put buyers at this strike stand prepared to profit in the event that shares in the headphones maker drop 6.4% from today’s low of $11.79 to breach the average breakeven price of $11.03 by January expiration.

Cameron International Corp. (NYSE:CAM)Shares in the manufacturer of oil and gas equipment may slide lower as the New Year gets underway, so suggests one bearish three-legged options combination play in the January 2012 contract today. Shares in Cameron International Corp. are down slightly by 0.20% to stand at $49.98 as of 11:50 AM in New York, extending losses realized Monday. It appears one strategist sold 2,016 calls at the Jan. 2012 $52.5 strike in order to offset the cost of buying a 2,016-lot Jan. 2012 $49/$42.5 put spread. The sale of the calls more than covered the net premium required to buy the put spread, resulting in a net credit of $0.53 per contract to the investor. The options trader keeps the net credit as long as shares in Cameron trade below $52.50 through Jan. 2012 expiration. Premium received on the trade acts as a buffer against losses should shares realize limited gains over and above $52.50, although protection runs out if the stock rallies above the effective upper breakeven price of $53.03 at expiration. Additional profits are available to the strategist if CAM’s shares extend losses in the near term and trade below $49.00. Maximum potential profits of $7.03 per contract pad the investor’s wallet in the event that shares in the oil equipment provider drop 15.0% to trade below $42.50 at expiration day next month.

Pan American Silver Corp. (NASDAQ:PAAS) Call options on the silver mining company are a hot commodity this morning, with shares in Pan American Silver Corp. rallying as much as 5.9% earlier in the session to an intraday high of $25.21. One or more options traders have exchanged nearly 13,000 calls at the April 2012 $26 strike against previously existing open interest of just 129 contracts. It looks like the majority of the contracts were purchased for an average premium of $2.41 apiece. Profits are available on the position in the event that shares in PAAS surge 12.7% over today’s high of $25.21 to surpass the average breakeven point on the upside at $28.41 by expiration day in April. Shares in Pan American Silver Corp. had been trading above $28.41 at the start of November.