Monday Options Brief: PCS, BID, BBBY & CVC

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Includes: BBBY, BID, CVC, TMUS
by: Interactive Brokers

MetroPCS Communications, Inc. (PCS) Shares in the wireless provider are down 4.25% at $8.56 ahead of the company’s pre-market third-quarter earnings release on Tuesday. Options players populating the front month calls and puts appear to be taking largely bullish stances on the stock. Investors positioning for shares to move higher in the next few weeks picked up more than 2,600 in-the-money calls at the Nov. $8.0 strike for an average premium of $1.05 a-pop. Call buyers at this strike profit at expiration in the event that shares in MetroPCS rally 5.7% to surpass the average breakeven point at $9.05. Options players also snapped up more than 300 call options at each of the higher Nov. $9.0 and $10 strike prices at average premiums of $0.49 and $0.19 each, respectively. Finally, the sale of some 1,100 puts at the Nov. $8.0 strike for an average premium of $0.40 per contract may mean traders see shares in the name trading above $8.00 come expiration day next month. Put open interest at the Nov. $8.0 strike is sufficient to cover volume in play thus far in the session. As such, traders may be adjusting existing positions rather than selling-to-open bullish stances on PCS. Options implied volatility on the stock is up 15.9% at 77.25% in early-afternoon trade. Nearly 9,000 option contracts have changed hands on MetroPCS so far today, with trading in calls outpacing that of puts by a factor of roughly two-to-one.

Sotheby’s Holdings Inc. (NYSE:BID)The auctioneer of authenticated fine art, antiques, jewelry and collectibles popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a sizable ratio put spread in the January 2012 contract. BID’s shares are currently down 3.2% at $36.26 as of 11:50 am in New York. The put player responsible for just about all of the activity in Sotheby’s options today may be bracing for limited bearish movement in the price of the underlying heading into the company’s third-quarter earnings report after the close on Thursday. The investor appears to have purchased 2,000 puts at the Jan. 2012 $35 strike for an average premium of $3.325 each, and sold 4,000 puts at the lower Jan. 2012 $30 strike at a premium of $1.50 apiece. Net premium paid to initiate the spread amounts to $0.325 per contract. The strategist profits if BID’s shares slide 4.4% from the current price to breach the effective breakeven point on the downside at $34.675 at expiration. Maximum potential profits of $4.675 per contract are available to the investor in the event that shares in the auctioneer plunge 17.3% to settle at $30.00 at expiration day in January. Shares in Sotheby’s Holdings Inc. fell to as low as $25.00 as recently as October 4. The parameters of the ratio spread point to complete erasure of gains, which may give way to losses on the downside, should the stock trade beneath a lower breakeven price of $25.325 at expiration.

Bed Bath & Beyond, Inc. (NASDAQ:BBBY) Options on the chain retail store operator are more active than usual this morning on reports of renewed takeover speculation. Shares in Bed Bath & Beyond are off their highest level of the session, to trade 1.2% higher on the day at $61.89 as of 11:35 am on the East Coast. Call options are far more active than puts, with traders exchanging nearly nine calls on the stock for each single put in play. Trading patterns in the contracts are mixed, but do seem to have a slight bullish bias. The near-term Nov. $65 strike calls are the most active, with more than 5,400 contracts having changed hands so far today. It looks like more of these calls were purchased for an average premium of $0.40 each, although a good number were also sold. Buyers of the calls may profit at expiration next month if shares in BBBY rise 5.7% to exceed the average breakeven point on the upside at $65.40. Call options in the front month at the $62.5 and $67.5 strikes are active, as well. Finally, the longer-dated Dec. $70 strike call has traded more than 500 times against open interest of just 4 contracts. It looks like most of these calls were purchased for an average premium of $0.21 a-pop. These options to buy the stock expire less than one week before Bed Bath & Beyond is scheduled to report third-quarter earnings, on December 21, after the final bell. Options implied volatility on the stock is off its highest point, but remains elevated, up 9.1% at 29.2% as of 11:50 am in New York.

Cablevision Systems Corp. (NYSE:CVC) Bearish traders are positioning for shares in Cablevision Systems Corp. to extend losses through November expiration, on the heels of a 60.0% decline in the price of the stock since June 30. Shares in CVC today trade 3.9% lower on the session at $14.55 as of 11:20 am in New York. Fresh signs of pessimism on the cable television company cropped up in the November contract, where traders snapped up more than 3,000 puts at the $13 strike for an average premium of $0.23 apiece. Put buyers may profit at expiration in a few weeks if shares in the name fall 12.2% from the current price of $14.55 to breach the average breakeven point on the downside at $12.77. Shares in CVC last traded below $12.77 back in April 2009. Options implied volatility on the stock rose 3.7% to 46.9% in the first half of the trading session.

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