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True Religion Apparel, Inc. (NASDAQ:TRLG) – Disappointing fourth-quarter earnings and weaker-than-expected 2012 guidance from high-end apparel maker, True Religion, saw shares down as much as 25.0% this morning to $27.57. The sharp pullback in the price of the underlying is a true kick in the pants for some traders holding bullish options, as the value of their positions tumbled overnight. One hard-hit strategy, a bull call spread initiated at $1.50 per contract yesterday afternoon, is practically worthless today. It looks like the trader purchased a 1,000-lot Feb. $37/$41 call spread for a net premium outlay of $1.50 per contract, looking for maximum possible profits of $2.50 per contract provided True Religion’s shares settled above $41.00 by February expiration. As of the close of trading on Thursday, with shares in TRLG at $36.80, the stock would have needed to rally % for the spread to yield maximum gains to the investor. But, with shares now sharply lower, the price of the underlying must soar nearly 40.0% to $38.50 in order for the trader to at least break even on the position. The trader takes maximum possible losses of $1.50 per contract on the spread if shares fail to rally above $37.00 by expiration next week. Meanwhile, investors that purchased bearish or protective put options heading into the earnings report saw the value of their positions soar. One such trade, the purchase of around 500 Feb. $31 puts for an average premium of $0.70 each at the end of January, is up big today. Investors buying the now deep in-the-money puts this morning paid an average premium of $3.22 per contract this morning, or nearly five times as much. Finally, investors positioning for shares in True Religion to extend losses ahead of February expiration snapped up some 500 puts at the $26 strike and another 140 puts at the $25 strike, at average premiums of $0.34 and $0.13 apiece, respectively.

Kroger Co. (NYSE:KR) – Supermarket operator, Kroger Co., reports fourth-quarter earnings in less than three weeks, and it appears at least one options player is hungry for downside protection. Shares in the Cincinnati, Ohio-based Company, wavering about its closing price of $23.58 for the better part of the session, are currently up one penny at $23.59 as of 12:45 p.m. ET. Trading traffic in Kroger Co. options is heaviest at the Mar. $23 strike, where more than 5,400 puts changed hands against open interest of 372 contracts. It looks like most of the put options were purchased for an average premium of $0.55 apiece. The strategist responsible for the majority of the volume may profit at expiration in March if Kroger’s shares decline 4.8% to breach the average breakeven price of $22.45. The put position may represent an outright bearish play on the supermarket stock, or could be a hedge against a long position in the underlying shares. Kroger’s shares last traded below $22.45 back on November 29, 2011.

International Game Technology (NYSE:IGT) – Shares in the world’s biggest maker of slot machines rallied briefly at the start of the session, but slipped into negative territory to stand 0.60% lower on the day at $15.50 as of 12:20 p.m. in New York. International Game Technology popped up on our scanners within the first 10 minutes of the opening bell due to heavier-than-usual activity in put options. It looks like one investor expecting shares in the gaming company to exceed $15.00 during the next several months sold around 3,200 puts at the April $15 strike for a premium of $0.65 per contract. The trader keeps the full amount of premium as long as shares settle above the strike price at April expiration. Selling the put options also means the trader could wind up having a large chunk of shares put to him at an effective price of $14.35 each in the event the contracts land in-the-money. Shares in IGT have traded above $15.00 since early October 2011.

Source: Friday Options Brief: TRLG, KR, IGT