Tuesday Options Brief: AOL, THC & AAP

 |  Includes: AAP, AOL, THC
by: Interactive Brokers

AOL - AOL, Inc. - Shares in online media company, AOL, Inc., jumped more than 16% today to a record high of $41.80 after the company posted third-quarter earnings and sales that beat analyst forecasts and said advertising revenue increased 7% in the quarter, the most in years. Options traders appear to be buying into the rally, snapping up front-month call options to position for continued gains in the price of the underlying in the near term. Bulls picked up nearly 5,000 of the deep in-the-money Nov. $39 strike calls for an average premium of $1.22 apiece this morning, and stand ready to profit at expiration as long as AOL's shares top the average breakeven price of $40.22. Upside calls are also active at the higher Nov. $40 striking price, where upwards of 5,500 in-the-money calls changed hands against open interest of 1,239 contracts. Time and sales data suggests most of the $40 calls were purchased in the first half of the session at an average premium of $0.82 a-pop. Call buyers make money if shares in the Internet media company extend gains to settle above $40.82 at expiration next week.

THC - Tenet Healthcare Corp. - Health care services company, Tenet Healthcare Corp., is selling off ahead of its third-quarter earnings report tomorrow morning, with shares in the name down nearly 5% as of 1:30 p.m. ET to stand at $24.65. At least one options trader is preparing for the price of the underlying to extend losses in the near term, buying a 5,000-lot Nov. $21/$24 bear put spread at a net premium of $0.67 per contract. The put spread starts making money if shares in Tenet Healthcare slip 5.4% to breach the effective breakeven price of $23.33 by November expiration. Maximum potential profits of $2.33 per contract are available to the downside should shares plunge 15% to $21.00 by expiration next week.

AAP - Advance Auto Parts, Inc. - Bullish sentiment on the specialty retailer of automotive aftermarket parts and accessories was telegraphed in the options market this morning ahead of the company's third-quarter earnings report before the opening bell on Thursday. Shares in Advance Auto Parts, Inc. are flat on the session to trade at $80.80 as of 1:00 p.m. ET. One options trader appears to have purchased a 3,000-lot Dec. $85/$90 call spread for a net premium outlay of $1.10 per contract roughly 10 minutes into the trading session today. The spread starts making money if shares in AAP rally at least 6.5% to surpass the effective breakeven price of $86.10, while maximum potential profits of $3.90 per contract are available on the position given a more than 11% move higher in the share price to $90.00 during the next six weeks to December expiration.