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RHT – Red Hat, Inc. – The software maker popped up on our scanners this morning after sizable trades were initiated in the front month calls. At first glance the activity could be mistaken for a pre-earnings bullish bet on shares in Red Hat ahead of the Company’s fourth-quarter release after the final bell on Wednesday. However, the transaction is likely bearish on RHT as the April expiry call activity appears to be tied to the sale of stock. Shares in Red Hat are up 1.7% at $52.74 in early-afternoon trade. The strategist responsible for the largest trade in RHT options appears to have purchased a 3,848-lot April $55/$57.5 call spread at a net premium of $0.75 per contract. The debit call spread was established seconds before a block of 50,000 shares in RHT sold at $52.70. The stock and options combo play positions the trader to profit on the short stock leg as long as Red Hat’s shares pullback sufficiently from the $52.70-level to offset the cost of buying the options. Meanwhile, the call spread hedges the position, protecting the trader from losses to the upside in the event that shares extend gains.

TSCO – Tractor Supply Co. – Shares in the largest U.S. retail farm and ranch store chain jumped 5.4% on Monday to hit a new 52-week high of $90.66. The Brentwood, Tennessee-based Company is scheduled to present at the Telsey Advisory Group’s 4th Annual Spring Consumer Conference on Wednesday morning. Options activity on Tractor Supply Co. this morning suggests some traders are positioning for the price of the underlying to extend gains in the near term. Around 795 calls changed hands at the May $95 strike against open interest of 51 contracts. It looks like most of these calls were purchased for an average premium of $1.65 apiece. Buyers of the $95 calls stand ready to profit at expiration in the event that shares in TSCO rally another 6.6% over today’s intraday high of $90.66 to top the average breakeven price of $96.65. Tractor Supply Co. reports fourth-quarter earnings on April 18th.

PETM – PetSmart, Inc. – The provider of pet supplies, products and services such as grooming and training saw heavier than usual activity in its options today, with current volume of 2,569 contracts running more than five times the stock’s 90-day average options volume of 458 contracts. Shares in PetSmart are up 1.7% at $58.30 this afternoon, on the heels of a 16.0% rally since the start of the year, and a more than 50.0% rise off the August 2011 52-week low of $37.76. Heavy trading traffic in July expiry puts this morning suggests some traders may be locking in gains, or positioning for PetSmart’s shares to pullback by expiration. In- and out-of-the-money contracts changed hands in the first 30 minutes of the session, with traders snapping up more than 500 July $60 puts at a premium of $3.70 each, and another 750 put options at the lower July $50 strike for an average premium of $0.60 apiece. The July $60 puts yield profits, or downside protection, in the event that shares in PETM drop 3.4% to breach the effective breakeven price of $56.30, while the $50 puts tout an average breakeven price of $49.60, implying shares would need to fall 14.9% from the current price to reach that level.

Source: Monday Options Brief: RHT, TSCO & PETM