Monday Options Brief: P, AIG, EXPR & BHI

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Includes: AIG, BHI, EXP, P
by: Interactive Brokers

P – Pandora Media, Inc. – Shares in the provider of Internet music services are up 6.5% at $14.80 this afternoon on the heels of an upgrade to ‘buy’ from ‘hold’ at Stifel Nicolaus and leading up to Pandora’s fourth-quarter earnings release ahead of the opening bell on Tuesday morning. Options on Pandora Media, Inc. are more active than usual today as investors take positions prior to the fourth-quarter performance report. Call options are far more popular than puts, with more than nine calls changing hands on Pandora for each single put in play. Volume is heaviest at the Mar. $16 strike, where more than 7,000 calls traded against open interest of just 917 contracts. Trading in the $16 calls is mixed, but it looks like slightly more of the contracts were purchased for an average premium of $0.44 each. Call buyers may profit at expiration in the event that Pandora’s shares surge 11.1% to surpass the average breakeven price of $16.44. Bullish positioning was also seen in the Mar. $17 strike calls as traders paid an average premium of $0.17 for around 400 of the contracts. Overall options volume on Pandora is fast approaching 20,000 contracts on the day just before 1:20 p.m. in New York trade.

AIG – American International Group, Inc. – The insurance giant’s shares are off their highest levels of the session, but remain positive, up 2.2% at $30.46 as of 11:45 a.m. in New York. Shares rallied as much as 5.0% to $31.30 this morning on news AIG is selling $6 billion in shares of AIA Group Ltd. to institutional investors. The bullish move in the price of the underlying shares is a boon for traders observed snapping up weekly call options at the tail-end of the last week. For example, the 1,923 open call positions at the Mar. ’09 $29 strike were mostly initiated by buyers paying, on average, $0.72 per contract this past Thursday and Friday. One transaction, the purchase of 440 of the $29 strike calls on Friday morning for a premium of $0.48 apiece, has one trader sitting on a pile of cash. If the strategist chose to take profits on the position right now, he or she would find they could more than triple their money given the current listed bid price of $1.53. Traders positioning for shares in AIG to continue to climb this week snapped up out-of-the-money calls, with some investors purchasing around 710 contracts up at the Mar. ’09 $32 strike for an average premium of $0.25 each. Options traders on the whole are favoring calls on AIG over puts, trading more than 3.6 calls on the stock for each single put in play as of midday.

EXPR – Express, Inc. – Shares in retailer, Express, Inc., are bucking the trend today, up 2.1% at $24.70 two days ahead of the Company’s fourth-quarter earnings report on Wednesday. Options activity on Express this morning suggests some traders are positioning for the price of the underlying to extend gains in the near term. The stock is already up big year-to-date, having rallied more than 25.0% since the start of 2012, to hit a record high of $24.72 earlier in today’s the session. Options are most active at the Mar. $25 strike, where 827 calls changed hands against open interest of 201 contracts. It looks like most of the calls were purchased for an average premium of $0.86 per contract, positioning buyers of the options to profit in the event that Express shares rise 4.6% to top the average breakeven price of $25.86 by expiration.

BHI – Baker Hughes, Inc. – The provider of equipment, technology and other services to the oil and gas industry popped up on our ‘hot by options volume’ market scanner at the start of the session after a large number of put options changed hands in the front month. Shares in Baker Hughes are down 2.7% today at $47.70 and the stock has fallen 23.0% from the October 27, 2011, six-month high of $61.90, but it looks like at least one options trader expects the stock will resist declining much further, at least in the near term. More than 5,000 puts changed hands at the Mar. $47 strike against open interest of 1,905 contracts this morning. It appears the majority of the puts were sold at an average premium of $0.54 apiece. The investor or investors responsible for the trades walk away with the full amount of premium in hand as long as shares in Baker Hughes exceed $47.00 at expiration. Put sellers could wind up having stock put to them at an effective price of $46.46 a share in the event that the price of the underlying settles below $47.00 and the put options land in-the-money at expiration next week.