Wednesday Options Brief: SKX, FLO & STJ

Includes: FLO, SKX, STJ
by: Interactive Brokers

SKX - Skechers USA, Inc. - An upgrade to 'Positive' from 'Neutral' with a 12-month target price increase to $22.00 from $19.00 at Susquehanna today kicked shares in shoemaker, Skechers USA, Inc., up as much as 13.6% to $19.26 on Wednesday. The sharp rise in shares sparked heavier-than-usual trading traffic in Skechers options this morning, with notable volumes building in upside calls on the footwear company. It looks like some traders are positioning for shares in the name to extend gains, while other strategists are taking profits on previously established bullish positions. The Dec. $17 strike call changed hands 1,000 times against open interest of 1,445 contracts within minutes of the opening bell today. Much of the open interest in the $17 strike call is the result of trading that took place on Monday; 1,000 of these contracts were purchased on Monday afternoon at a premium of $0.74 apiece. Today, it looks like the buyer of those 1,000 option contracts is selling-to-close the position for an average premium of $1.90 each, and pocketing net profits of around $1.16 per contract in the process. Fresh in-the-money call buying on SKX is apparent at the Dec. $18 strike where 300 lots were purchased at an average premium of $1.07 each. Buyers of these contracts profit at expiration next month as long as shares in Skechers settle above the average breakeven price of $19.07. Bullish positioning spread to the Jan. $18 and $20 strike calls, as well. Traders snapped up roughly 200 lots at each striking price, paying average premiums of $1.72 and $0.68 per contract, respectively. Upwards of 3,300 call and put options are in play on the Manhattan Beach, Calif.-based company as of 11:50 a.m. ET, versus the stock's average daily options volume of around 430 contracts. Calls are far more active than puts, with the call-to-put ratio up above 11.6 as of the time of this writing.

FLO - Flowers Foods, Inc. - Traders are continuing to flock to Flowers Foods, Inc. options on reports Hostess Brands, Inc. will ask a court judge for permission to shut down its operations indefinitely following a failed attempt to mediate a contract dispute between the company and its bakers' union. Shares in Flowers Foods on Monday jumped to a four-month high of $24.04 on speculation the company could be a buyer in the event Hostess puts its assets up for sale. Talk of mediation shaved a portion of the roughly 30% rally in the shares since last Monday off this week, but developments in the situation today now find the stock moving higher once more, up 4.4% on Wednesday afternoon at $23.08 as of 12:30 p.m. ET. Options traders positioning for the price of the underlying to extend gains purchased front month calls on the Flowers this morning. The most active contracts are the Dec. $25 strike calls, which changed hands more than 3,000 times versus open interest of 289 contracts. The bulk of the volume was purchased in a block of 2,500 call options at a premium of $0.25 apiece. The trader or traders long the $25 strike calls stand ready to profit at expiration should shares in Flowers Foods rally another 9% over the current price of $23.08 to surpass the average breakeven price at $25.25.

STJ - St. Jude Medical, Inc. - Shares in the medical devices maker are reeling after an inspection report from the FDA pointed to errors in the company's oversight and testing procedures related to design changes of one of St. Jude Medical's key products. The stock has dropped 15% as of midday in New York to a multi-year low of $30.35. Traders quick out of the gate to scoop up bearish put options on the name are seeing the value of their positions rally intraday. It looks like bears picked up roughly 1,300 puts at the Dec. $32 strike for a premium of $0.65 apiece this morning when shares had yet to slip to current session lows. Premium required to purchase these now deep in-the-money Dec. $32 strike puts has jumped three-fold since this morning to $2.10 apiece just a few short hours later. Similarly, one or more strategists picked up 300 puts at the Dec. $33 strike for an average premium of $0.95 each in morning trading. The deep in-the-money Dec. $33 strike puts now tout an asking price that has tripled to $2.85 each as of 12:10 p.m. ET. Overall options volume on the medical devices maker in excess of 25,000 contracts is substantial in comparison to the stock's average daily options volume of 1,761 contracts and overall open interest of 35,099 previously established positions.