Monday Options Brief: UTX, FSLR & CCL

|
Includes: CCL, FSLR, UTX
by: Interactive Brokers

UTX – United Technologies Corp. – A burst of call activity on United Technologies may mean traders are expecting shares in the operator of Otis, Pratt & Whitney, Sikorsky and others to rise substantially ahead of March expiration. The stock is roughly flat on the session, down 0.10% at $83.89 as of 1:10 p.m. on the East Coast. Roughly one hour into the trading session, traffic in out-of-the-money call options with three weeks remaining to expiration spiked – this following Friday’s bullish action in the $85 weekly options. One or more traders appear to have purchased some 1,700 calls at the Mar. $85 strike at a premium of $0.76 each and at least 2,500 calls at the Mar. $87.5 strike for an average premium of $0.22 apiece. Call volume is heaviest up at the Mar. $90 strike, where more than 9,100 contracts changed hands against open interest of just 201 contracts. A block of 6,415 of the $90 strike calls, the largest single trade in UTX options today, was purchased by one investor for $0.09 each. The sizable block of call options appears to be a low-cost, low probability bet that shares in UTX may be rally sharply ahead of March expiration. Profits may be available on the position in the event that shares in UTX jump 7.4% to top the effective breakeven price of $90.09 by expiration next month. Shares in UTX last traded above $90.09 back in July 2011. The stock has rallied nearly 13.0% since the start of the New Year.

FSLR – First Solar, Inc. – Big prints in First Solar put options appear to be the work of an investor taking profits on one sizable put spread and simultaneously initiating a fresh bearish stance on the stock. Shares in FSLR trade 0.35% lower on the day at $35.46 as of 12:30 p.m. in New York, a near 80.0% discount to the stock’s April 1, 2011, 52-week high of $163.00, and a staggering 89.0% discount to the May 2008 all-time high of $317.00. The investor responsible for the largest options trades on FSLR today appears to be banking gains on one bearish stance initiated back on Valentine’s Day, while positioning anew for the shares to worsen in the near term. It looks like the trader pocketed net profits of $0.70 per contract on the 11,625-lot Mar. $32/$39 put spread he or she originally purchased at a net premium of $2.88 apiece. Shares in FSLR have declined roughly 8.0% since the put spread was initiated, allowing the investor to sell the spread today at a net premium of $3.58 per contract. Next, it appears the strategist established a fresh bearish stance on First Solar, buying the 12,533-lot Mar. $27/$34 put spread at a net premium of $1.80 per contract. Profits are available on the position in the event that FSLR’s shares decline another 9.2% to breach the effective breakeven price of $32.20 by expiration. The put player may walk away with maximum possible profits of $5.20 per contract at March expiration should the price of the underlying plunge 23.9% to settle below $27.00. Of course, the trader may choose to take profits on the new bearish spread in advance of expiration should the spread widen out in the next few weeks.

CCL – Carnival Corp. – Bearish activity in the front month options on cruise operator Carnival this morning suggests the price of the underlying shares may sink to fresh 52-week lows in the next few weeks. Shares in CCL dipped to as low as $29.22 following the Costa Concordia tragedy in January and remain depressed more than one month later, with shares today down 0.80% on the session to stand at $29.73 as of 11:55 a.m. in New York. Traders snapped up in- and out-of-the-money puts to prepare for a CCL pullback, exchanging around 2,295 contracts at the Mar. $28 strike against open interest of 1,154 positions. Most of the $28 strike put options appear to have been purchased for an average premium of $0.31 each, thus positioning buyers to profit at expiration in the event that Carnival’s shares drop 6.9% to breach the effective breakeven price of $27.69. Mar. $29 strike puts attracted bearish bets as well, with around 1,500 of the contracts purchased for an average premium of $0.59 each. In-the-money puts at the Mar. $31 strike with a price tag of $1.70 apiece were bought some 750 times this morning. Carnival Corp. is scheduled to report first-quarter earnings on March 22, nearly one week after the March expiry put options will have expired. But, investors buying around 1,200 puts at the April $30 strike for an average premium of $1.88 each today may see the value of their contracts rise should shares in the cruise operator drop following the Q1 report next month.