Monday Options Brief: STZ, RIMM & NRG

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Includes: BBRY, NRG, STZ
by: Interactive Brokers

STZ - Constellation Brands, Inc. - Shares in the world's largest wine company are leading the few gainers in the S&P 500 Index this morning, bucking the broader market trend as U.S. equities extend losses for a third session in four. Constellation Brands increased as much as 14.0% to $22.10 today on reports global brewing giant, AB InBev, may buy the portion of Mexican brewing company, Grupo Modelo SAB, it does not already own in a transaction that could be valued at $20 billion and include a payment to Constellation Brands. Heavier than usual trading traffic in the July $20 strike call on Friday afternoon ahead of the chatter is worth noting as double-digit gains in the underlying has at least one strategist sitting on triple-digit gains on a particularly well-timed bullish options position. Open interest in the July $20 strike call suggests some 1,550 contracts were purchased for a premium of $0.40 apiece on Friday afternoon, roughly one hour and forty minutes prior to the closing bell. These contracts are currently trading at $2.30 apiece as of 12:20 p.m. ET, a more than five-fold increase in the value of the call options over the weekend. Meanwhile, news of the potential deal spurred fresh bullish positioning in Constellation Brands calls this morning with buyers snapping up Aug. $20, $22.5 and $25 strike calls to position for further upside in the stock. The front-month July $22.5 strike call is the most heavily traded so far today, with upwards of 2,500 calls in play against fewer than 1,000 open contracts. Constellation Brands is scheduled to report first-quarter earnings prior to the opening bell on Friday.

RIMM - Research in Motion Ltd. - Investors continue to dump Research in Motion, sending shares in the Blackberry maker down as much as 8.3% today to a fresh multi-year low of $9.03 after analysts at Morgan Stanley downgraded the stock to underweight from equalweight. Weekly options on RIMM are seeing the most action today, specifically the Jun. 29 '12 $10 strike call, where upwards of 13,700 lots changed hands against open interest of 1,634 contracts in the first half of the session. It looks like most of these $10 calls were purchased for an average premium of $0.27 apiece, perhaps as traders speculate on a possible near-term pop in the shares or to hedge short positions in the underlying. The $10 weekly puts also attracted heavy volume, trading more than 8,100 times against open interest of 3,279 contracts. A large block of 6,025 puts were purchased by one strategist for a premium of $1.01 each. The put buyer may be taking an outright bearish stance on the troubled handset maker that is profitable if shares settle below the effective breakeven price of $8.99 at expiration. Options on the Blackberry maker are more active than usual as investors await the company's first-quarter results due out after the close on Thursday.

NRG - NRG Energy, Inc. - Options activity on the operator of power facilities in the United States suggests at least one strategist may be positioning for shares in the beaten-down stock to stage a turn-around during the next couple of months. Shares in NRG Energy, Inc. are down 1.8% at $15.33 as of 12:40 p.m. in New York, trading at a 40.0% discount to the July 25, 2011, 52-week high of $25.66. Fresh interest building in the Aug. $16 strike call caught our eye this morning as some 2,100 contracts changed hands against open interest of 124 positions. It appears most of the calls were purchased for a premium of around $0.60 apiece. The buyer of buyers of the contracts stand prepared to profit at August expiration in the event NRG shares rally 8.3% to surpass the average breakeven price of $16.60. NRG Energy, Inc. is scheduled to report second-quarter earnings ahead of the opening bell on August 2nd.