Thursday Options Brief: NFLX, IGT & DOW

Includes: DOW, IGT, NFLX
by: Interactive Brokers

Netflix, Inc. (NASDAQ:NFLX) Shares of the provider of DVD-rental-by-mail service as well as unlimited access to online streaming content to its subscribers rallied 3.85% to briefly touch a new 52-week high of $119.88 this morning. The rally in the price of the underlying stock tapered off slightly by 10:50 am (NYSE:ET), although Netflix shares are still up more than 1.80% on the day at $117.53. Bullish options trading activity observed on Wednesday continued today, with investors selling put options and buying calls in the June contract. Investors expecting NFLX’s shares to trade above $115.00 through June expiration sold roughly 4,000 puts at the June $115 strike to pocket an average premium of $3.26 per contract. Traders anticipating continued appreciation in the price of the stock purchased at least 1,200 calls at the June $130 strike for an average premium of $0.90 each. Shares must surge 9.2% over the new 52-week high of $119.88 before call-buyers at the June $130 strike start to make money above the average breakeven price of $130.90. The overall reading of options implied volatility on NFLX is lower by 4.00% to 62.39% as of 10:55 am (ET).

International Game Technology, Inc. (NYSE:IGT)Shares of the maker of major slot games and casino network systems are higher by 3.15% to $18.90 in morning trading perhaps on news the firm signed a multi-product and systems agreement to provide its integrated games and systems solution at The Cosmopolitan, a new resort in Las Vegas, which is set to open in December 2010. Earlier this week we observed one investor enact a long-term three legged bullish options combination strategy, but today investors are employing nearer-term optimistic tactics. Bullish traders sold short at least 3,700 puts at the July $15 strike to pocket an average premium of $0.10 per contract. Investors short the puts keep the full premium received on the transaction as long as IGT’s shares exceed $15.00 by July expiration. Put sellers are apparently happy to have shares of the underlying stock put to them at an effective price of $14.90 should the put options land in-the-money at expiration. Options implied volatility is down 6.6% to 43.03% as of 11:07 am (ET).

Dow Chemical Co. (NYSE:DOW)Bullish options investors were quick to initiate optimistic transactions on Dow Chemical this morning with shares of the manufacturer of chemicals, plastic materials and agricultural products trading higher by 2.90% to stand at $26.18 by 10:40 am (ET). Early-bird investors sold short nearly 6,500 puts at the July $20 strike to take in an average premium of $0.195 per contract. Put sellers keep the full premium received on the sale as long as DOW’s share price exceeds $20.00 through expiration day next month. Dow Chemical’s shares have not traded near $20.00 since September 4, 2009.

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