Tuesday Options Brief: ANN, CONN & RNDY

Includes: ANN, CONN, RNDY
by: Interactive Brokers

ANN - Ann, Inc. - The operator of Ann Taylor and LOFT brand stores popped up on our 'hot by options volume' market scanner after a large spread was established in the June expiry calls. Shares in Ann, Inc. are trading up 1.2% at $29.13 in early-afternoon trade. The stock has had a tremendous run in the past two months, up 31.5% off the February 2nd year-to-date low of $22.14, and it looks like one options player is positioning for the shares to extend gains through June expiration. The strategist appears to have purchased a 5,000-lot June $31/$34 call spread for an average premium of $0.75 per contract, thus positioning him or her to profit in the event that Ann's shares rally another 9.0% to surpass the average breakeven price of $31.75. Maximum potential profits of $2.25 per contract are available on the spread as long as the apparel retailer's shares rise 16.7% to trade above $34.00 at June expiration. The debit call spread comprising 10,000 option contracts is gargantuan next to the stock's 90-day average options volume of 577 contracts, and is sizable in comparison to ANN's overall open interest of 15,090 positions.

CONN - Conn's, Inc. - Premiums on Conn's, Inc. call options are soaring this morning to the delight of some traders that appear to have initiated bullish positions on the specialty retailer of home appliances and consumer electronics prior to the fourth-quarter earnings report. Shares in Conn's jumped 20.3% to $19.83 - the highest intraday price since September 2008 - after the Company swung to a fourth-quarter profit and projected better-than-expected fiscal 2013 earnings of at least $1.20 a share. Open interest in the April and May $17.5 strike calls suggest some traders snapped up the bullish contracts as recently as yesterday afternoon to position for shares in the retailer to pop. Front month call buyers picked up around 200 lots at the April $17.5 strike yesterday for premiums of $0.25 to $0.55 apiece. The sharp move higher in Conn's, Inc. shares after earnings sent premium on the now in-the-money front month calls through the roof, with the contracts currently displaying bid/ask prices of $2.05/$2.35 as of 11:20 a.m. in New York. One trader targeted the May $17.5 strike calls ahead of the fourth-quarter report, buying around 180 of the contracts for an average premium of $0.80 each last Tuesday. The monster rally in CONN's shares has those contracts trading at $2.55 apiece, a more than three-fold increase week-over-week. Overall options volume of 1,083 contracts on Conn's, Inc. today is up sharply over the stock's 90-day average options volume of 153 contracts. The most active contracts are the July $20 strike calls where one trader appears to have purchased roughly 165 lots for an average premium of $1.83 apiece. The call buyer may profit at expiration in the event that Conn's shares rally another 10.0% over today's high of $19.83 to surpass the average breakeven price of $21.83.

RNDY - Roundy's Inc. - Options on Midwest grocer Roundy's Inc. are active again today as shares in the operator of Pick 'n Save and other retail grocery names extended gains to secure a new record intraday high of $12.00. Shares in Roundy's soared more than 10.0% at the open of trade on Monday after the stock was added to the Russell 2000 Index. The single largest transaction in RNDY options today appears to be a vote of confidence that the stock is unlikely to trade in the single-digits again anytime soon. It looks like one trader sold 2,000 puts at the Sept. $10 strike to pocket premium of $0.75 per contract. The put seller walks away with the full amount of premium in hand as long as shares in Roundy's exceed $10.00 at expiration. The trader risks having 200,000 shares of the underlying put to him at an effective price of $9.75 each, however, should the price of the underlying drop 14.6% from the current price of $11.71 to settle below $10.00 at expiration in September.