Thursday Options Brief: CAT, RRGB & ROC

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Includes: CAT, ROC, RRGB
by: Interactive Brokers

CAT - Caterpillar, Inc. - Shares in machinery maker, Caterpillar, Inc., are down the most in the Dow Jones Industrial Average today, trading more than 4.0% lower this afternoon at $88.08 as of 12:15 p.m. in New York. The stock has fallen roughly 25.0% in the past two months after reaching a record high of $116.95 at the end of February. June expiry options trades initiated on CAT this morning suggest there are some strategists preparing for a recovery in the price of the underlying while others position for further bearish movement in the stock through expiration next month. A 1,500-lot June $80/$87.5 debit put spread established at a net cost of $2.20 per contract makes money if shares in Caterpillar decline another 3.2% to trade below the effective breakeven price of $85.30 by June expiration. Maximum possible gains available on the spread amount to $5.30 per contract should the stock plunge 9.2% to $80.00 in the next four weeks. In contrast, June $92.5/$100 call spreads established for a net premium outlay of around $1.55 each look for shares in Caterpillar to rebound sharply come expiration day. Finally, nearer term plays in the fresh weekly options issued on the stock were largely bearish in the first half of the session, with traders buying puts at the May 25 '12 $80, $82.5 and $85 strikes that increase in value if CAT's shares extend losses next week.

RRGB - Red Robin Gourmet Burgers, Inc. - It looks like traders that sold Red Robin call options ahead of the restaurant chain operator's disappointing first-quarter earnings report can have their burger and eat it too as shares in the name take a sharp turn to the downside. Shares in Red Robin Gourmet Burgers are off their lows of the session, trading down 11.9% at present to stand at $31.50 as of 1:20 p.m. ET. A review of open interest in the May $35 strike call, currently at 814 open positions, suggests some 478 of the contracts were sold at an average premium of $1.38 apiece between May 3rd and May 8th. With shares in the name taking a big hit today and with expiration on the horizon, it's no surprise to see these contracts are now almost worthless. The far out-of-the-money May $35 strike call is trading at a premium of $0.05 each this afternoon.

ROC - Rockwood Holdings, Inc. - Shares in the Princeton, New Jersey-based chemical maker are down 5.4% at $46.25 this afternoon, but options in play on Rockwood Holdings, Inc. today suggest there could be a rebound in the shares in the next four weeks. A 500-lot June $50/$55 call spread, purchased at an average net premium of $1.10 per contract, may be a profitable strategy if Rockwood's shares rally 10.5% to top the average breakeven price of $51.10. Maximum potential profits of $3.90 are available on the transaction in the event that ROC shares soar 18.9% to exceed $55.00 at June expiration. Rockwood is scheduled to have its shareholder meeting tomorrow and will present at the Goldman Sachs Basic Materials Conference in 2012 on May 23rd.