Wednesday Options Brief: IPXL, YUM & APOL

Includes: AMRX, APOL, YUM
by: Interactive Brokers

IPXL - Impax Laboratories, Inc. - Upside call options are active on specialty pharmaceutical company, Impax Laboratories, Inc., this morning, with shares in the name up better than 1.5% on the day at $21.89 as of 11:20 a.m. ET. Shares in Impax, which last week announced it has resumed shipping pain medication, Oxymorphone Hydrochloride Extended Release Tablets, through its generics division have increased 7% since the start of the New Year. Traders betting the stock has more room to run in the near term snapped up February expiry calls this morning. The Feb. $22.5 strike calls are most active, with upwards of 5,900 contracts in play versus open interest of 851 contracts. It looks like most of the calls were purchased for an average premium of $1.32 apiece, thus positioning buyers to profit at expiration next month should Impax shares rally another 9% to exceed the average breakeven price of $23.82. Bullish traders also looked to the Feb. $25 strike where some 690 call options were purchased in the early going at an average premium of $0.54 each. The drug maker reports fourth-quarter earnings ahead of the opening bell on February 26th, more than one week after the February options expiration.

YUM - Yum! Brands, Inc. - The restaurant operator's shares kicked off Wednesday's trading session in recovery mode, rising modestly following a more than 4% decline in the price of the underlying on Tuesday. The rally has so far proven to be short-lived, however, with shares in the name now down 0.80% at $64.19 as of 12:00 p.m. ET in New York. A three-legged bearish options spread initiated on the operator of KFC, Pizza Hut and Taco Bell today looks for shares in Yum! Brands to potentially drop to the lowest level since October 2011 by this time next year. It looks like one strategist sold 2,500 calls at the Jan. 2014 $70 strike in order to offset the cost of buying a 2,500-lot Jan. 2014 $50/$62.5 put spread. The spread traded flat and positions the options player to profit in the event that YUM shares slip 2.6% to trade below $62.50. The position could yield maximum potential profits of $12.50 per contract if shares in the name plunge 22% from the current level to settle at $50.00 at January 2014 expiration. If the trader is long the stock, the spread protects against sharp declines in the price of the underlying through expiration, but also limits the trader's ability to participate in gains above the $70.00 level. Yum! Brands, Inc. is scheduled to report fourth-quarter earnings after the closing bell on February 4th.

APOL - Apollo Group, Inc. - Shares in the for-profit provider of educational programs and services declined 11.5% on Wednesday to $18.52 after new enrollment dropped for a third consecutive quarter. The stock, down nearly 70% since this time last year, was cut to 'equalweight' from 'overweight' at Morgan Stanley and First Analysis Corp. today. Options activity on Apollo Group this morning suggests some traders are positioning for the price of the underlying to potentially slump to the lowest level in more than a decade in the near future. Bearish players appear to have purchased roughly 1,900 puts at the Feb. $15 strike for an average premium of $0.21 apiece during the first 30 minutes of the trading session. Put buyers stand ready to profit at expiration next month should shares in APOL plunge 21% from the current price of $18.71 to breach the average breakeven point at $14.79. Apollo reported first-quarter earnings after the closing bell on Tuesday, posting net income and revenue above consensus estimates.