Wednesday Options Brief: VLO, WNR & TSN

Includes: TSN, VLO, WNR
by: Interactive Brokers

VLO – Valero Energy Corp. – The largest independent refiner in the U.S. is the biggest gainer in the S&P 500 Index today, with shares in Valero Energy Corp. currently up more than 7.6% at $27.09 as of 12:10 p.m. in New York. Options activity on the San Antonio, Texas-based Company suggests traders are positioning for the price of the underlying to extend gains in the months ahead. April expiry calls attracted buyers today, with the $26 and $28 strike options seeing the most volume. Traders eyeing further upside moves in the stock purchased most of the 2,200 $28 calls in play for an average premium of $0.66 each. Call buyers profit at expiration next month in the event that Valero’s shares rally another 5.8% to surpass the average breakeven price of $28.66. But, it looks like one strategist trading VLO calls on Monday is already sitting on paper profits given the positive price action since the options were purchased. Call open interest in the April expiry is greatest at the $26 strike, with some 4,574 open positions. Most of these positions were initiated in a block of 3,700 call options, purchased on Monday afternoon for a premium of $1.05 per contract. These calls are now trading at $1.95 apiece as of 12:30 p.m. ET, indicating the value of the position has jumped roughly 85.0% in two days. Finally, the largest transaction in Valero options was established within the first 20 minutes of the opening bell. One trader appears to have sold June $24 strike puts to offset the cost of getting long the June $27 strike calls. The bullish position has the potential to become increasingly profitable for the strategist as shares climb north of the $27-level.

WNR – Western Refining, Inc. – Shares in independent oil and gas company, Western Refining, Inc., are in rally mode today, gaining less than Valero Energy Corp., but still trading sharply higher by 4.3% to stand at $19.24 in early-afternoon trade. Bullish options activity was seen across both names today, with front month calls garnering the most action on Western Refining thus far in the session. Volume is heaviest at the Mar. $20 strike, where more than 4,460 calls changed hands against open interest of 1,714 contracts. It looks like most of the calls were purchased for a premium of $0.25 a-pop, thus positioning buyers of the options to profit should WNR shares rally another 5.25% to exceed the breakeven price of $20.25 at expiration next week.

TSN – Tyson Foods, Inc. – The beef, pork and prepared foods producer attracted heavier-than-usual traffic in call options today, with some traders positioning for the price of the underlying to rise during the next six weeks. Shares in Tyson Foods are up 1.7% at $19.50 this afternoon. Options on the food company are most active in the April expiry, where the closest-to-the-money contracts available changed hands more than 3,200 times. Most of these April $20 strike calls appear to have been purchased for an average premium of $0.40 apiece. The investor or investors holding the options are prepared to make money at April expiration should Tyson’s shares rally another 4.6% over the current price of $19.50 to surpass the average breakeven price of $20.40. April $21 and October $21 strike calls traded more than 1,000 times as part of a spread. The chicken processor was upgraded to ‘Buy’ from ‘Neutral’ with a 12-month target share price of $28.00 at Davenport yesterday, and is scheduled to present at the Goldman Sachs 16th annual Agricultural Biotech Forum at 1:00 p.m. today.