Wednesday Options Brief: UIS, GPS & MS

Includes: GPS, MS, UIS
by: Interactive Brokers

UIS - Unisys Corp. - Higher-than-expected first-quarter profits reported by information technology services provider, Unisys Corp., on Tuesday sent shares in the name up sharply to the benefit of some pre-earnings report call buyers. Shares in Unisys, which had declined significantly this year, rose as much as 28.0% in the first half of the session to $20.98. Bullish positions initiated in the front month prior to the earnings release have in some cases more than tripled in value. Of note, the purchase of some 745 May $17 strike call options for a premium of $1.00 on Friday April 20th, are now deep in-the-money and trade at $3.80 apiece. Meanwhile, open interest in the May $18 strike calls suggests close to 300 contracts were picked up for a premium of $0.65 each yesterday afternoon. The spike in shares overnight now sees the $18 calls changing hands at a last-traded price of $2.95 per contract, a roughly 350% increase in premium. Options on Unisys Corp. are far more active than usual overall today with some 5,350 contracts in play this afternoon versus the 90-day average options volume of 506 contracts on the stock. Traders are focusing their efforts in UIS calls, exchanging roughly 3.7 calls for each single put option traded.

GPS - Gap, Inc. - Shares in the apparel and accessories retailer are up 1.6% at $27.63 this morning, just off Friday's fresh 52-week high of $27.95. The stock has soared in 2012, rising nearly 50.0% year-to-date. But, a large bear put spread initiated in the front month a couple of minutes into the trading day suggests one strategist is prepared should shares slip in the near term. Gap is scheduled to report first-quarter earnings on May 17th after the close. The trader responsible for the hefty spread appears to have purchased 10,000 puts at the May $26 strike, sold the same number of puts at the May $24 strike, all for a net premium outlay of $0.32 per contract. The put play may be a hedge to protect a long position in the underlying shares, or an outright bearish bet predicting limited declines in the share price leading up to- or following earnings. Profits, or downside protection, kick in if shares in GPS fall 7.0% to breach the effective breakeven point at $25.68, with maximum potential gains of $1.68 per contract available in the event of a 13.1% pullback in the stock to $24.00.

MS - Morgan Stanley - Shares in Morgan Stanley are down more than 20.0% off the March 26th six-month closing-high of $21.18, but one sizable options play on the name today seems to be looking for a quick recovery in the price of the underlying during the next three weeks. The shares are down 2.6% this afternoon to stand at $16.95. The options play eyeing limited bullish movement in the price of the underlying appears to be a ratio call spread combining the purchase of around 10,000 May $18 strike calls with the sale of roughly 20,000 May $20 strike calls, all for a net premium of $0.14 per contract. The strategy is profitable as long as shares in the financial services firm rally 7.0% to top the effective breakeven price of $18.14 with maximum possible profits of $1.86 per contract available should the stock gain 18.0% to settle at $20.00 at expiration next month.