Thursday Options Brief: KSS, NFLX & CTSH

Includes: CTSH, KSS, NFLX
by: Interactive Brokers

KSS - Kohl's Corp. - Shares in the department store operator are up better than 7.5% at $47.68 as of 11:35 a.m. in New York despite a larger-than-expected decline in the company's June same-store sales. Kohl's reported a 4.8% drop in same-store sales for last month and said it expects second-quarter earnings to come in at the low end of their prior forecast of $0.96 to $1.02 a share. The pop in the price of the underlying shares made KSS one of the best performers in the S&P 500 Index this morning and spurred bullish activity in the retailer's options as some traders looked to position for the stock to extend gains in the near term. Volume in the front month calls is heaviest at the July $46 strike where approximately 1,000 in-the-money calls were purchased for an average premium of $1.05 apiece. Traders long the calls stand ready to profit should shares in Kohl's settle above the average breakeven price of $47.05 at expiration. Premium required to buy the July $46 calls has moved up sharply intraday, with the last-traded price on the contracts up at $2.15 for a 105% increase over the $1.05 traders paid on average earlier in the session. Finally, traders that purchased calls ahead of Independence Day returned Thursday to find the value of their positions soaring to the upside. Open interest in the July $46 call suggests around 430 contracts were picked up at a premium of $0.50 apiece on Tuesday. These call options are now worth more than four times as much.

NFLX - Netflix, Inc. - The provider of subscription streaming services for television episodes and movies is leading the S&P 500 gainers today, with shares in Netflix up more than 11.5% at $80.45 on reports users streamed a record 1 billion hours of video during the month of June. The big move in the price of the underlying saw an influx of call buying on the name indicating some traders are positioning for the stock to continue higher this week and next. Weekly calls with one full day of trading remaining to expiration drew a crowd early in the session. The July 06 '12 $80 strike calls changed hands nearly 8,000 times by midday versus open interest of 256 contracts, with most of the volume purchased for an average premium of $0.79 each. Call buyers stand ready to make money at expiration as long as shares in the name top the average breakeven price of $80.79. Bullish activity spread to the next batch of weekly options, as well. Buyers snapped up July 13 '12 $80, $85 and $90 call options that may continue to appreciate in value should NFLX shares extend gains during the next six trading sessions. Overall volume in Netflix options is approaching 85,000 as of 12:10 p.m. ET, a big increase compared to the stock's average daily option volume of 21,419 contracts.

CTSH - Cognizant Technology Solutions Corp. - The provider of custom IT consulting and technology services popped up on our 'hot by options volume' market scanner this morning after a large bearish spread traded in the August expiry calls and puts. Shares in CTSH are up 0.30% on the day at $59.94 as of 12:15 p.m. in New York. It looks like one strategist sold call options on Cognizant to offset the cost of a bear put spread. The trader appears to have sold 3,400 Aug. $65 calls to buy a 3,400-lot Aug. $52.5/$57.5 put spread for a net premium outlay of $0.60 per contract. Profits are available on the position at expiration next month in the event that Cognizant's shares slide 5.1% to breach the breakeven point on the downside at $56.90, while maximum possible profits of $4.40 per contract require a 12.4% drop in the share price to $52.50 within the same time period. The trader risks losing the $0.60 in premium paid for the position should shares top $57.50 at expiration but fail to surpass $65.00. Unless the strategist is long a sufficient number of shares in CTSH, he or she faces losses to the upside in line with any gains in the stock above the $65.00 level through expiration.