Thursday Options Brief: UPS, MAT & SGMS

Includes: MAT, SGMS, UPS
by: Interactive Brokers

UPS- United Parcel Service, Inc. - Shares in UPS are off their lows of the session this afternoon, down just 0.05% to stand at $76.28 as of 12:20 p.m. ET. The stock joined in the strong broad-based rally in equities this week after U.S. lawmakers finally came to a last-minute agreement to avoid drastic spending cuts and tax increases. Options traders positioning for shares in UPS to increase significantly during the first half of this year appear to be picking up July expiry calls. It looks like traders exchanged upwards of 10,900 calls at the July $77.5 strike this morning versus open interest of 3,731, and purchased most of the contracts for an average premium of $2.73 apiece. Call buyers stand ready to profit at July expiration should shares in UPS increase more than 5% to top the average breakeven price of $80.23. Shares in the name last traded above $80.23 in July 2012. UPS reports fourth-quarter earnings four weeks from today.

MAT - Mattel, Inc. - Toy maker, Mattel, Inc., popped up on our market scanners today following heavy volume in the February expiry put options. Shares in the name are currently down 0.30% on the day to stand at $36.70, but closed out 2012 up better than 30% for the year. Some of the trading traffic in MAT puts today may be the work of strategists locking in gains and bracing for possible declines in the price of the underlying after the company reports fourth-quarter earnings at the end of January. Traders exchanged approximately 2,100 in-the-money puts at the Feb. $38 strike, buying most of the contracts at an average premium of $2.00 apiece. These contracts start making money if shares in Mattel dip below the average breakeven price of $36.00 by expiration next month. The Feb. $36 strike calls are in play today as well, with around 1,800 lots purchased for an average premium of $0.97 each. Traders long the $36 strike put options may profit at February expiration should Mattel's shares slide 4.6% from the current level to breach the average breakeven price of $35.03. Finally, put volume on Mattel today is greatest at the Feb. $37 strike where two blocks of 2,500 put options each changed hands against open interest of 85 contracts.

SGMS - Scientific Games Corp. - Options on gaming technology and services provider, Scientific Games Corp., are seeing heavier trading traffic than usual today, with volume in excess of 1,100 contracts as of 12:40 p.m. ET, versus average daily options volume of just 91 contracts. Shares in SGMS are up better than 3.5% on the day to stand at $9.58. Some traders appear to be buying upside calls on the name to position for shares in Scientific Games Corp. to extend gains during the next few months. The April $10 strike calls are most active, with roughly 960 call options in play against previously existing open interest of 49 contracts. Most of the April $10 strike calls were purchased this morning for an average premium of $0.70 apiece, and may be profitable at expiration in the event that SGMS shares rally another 11.7% to top the average breakeven point at $10.70. Shares in Scientific Games Corp. last traded above $10.70 in May 2012.