Thursday Options Brief: YHOO, LIZ & SFI

Includes: AABA, KATE, STAR
by: Interactive Brokers

Yahoo!, Inc. (YHOO)Shares in Yahoo!, Inc. surrendered gains enjoyed earlier in the session, to trade 0.40% lower on the day at $15.56 just after 2:00 PM on the East Coast. The stock rose earlier in the day after All Things Digital reported that Yahoo’s Chairman and other board members are formally meeting with two private equity firms that have made bids for the Internet company. The report was followed by heavy bullish options activity on the stock in the April 2012 contract, where it appears one or more traders enacted massive three-legged bullish spreads to position for shares to rally. It looks like the investor or investors responsible for initiating the activity sold April 2012 $14 strike put options in order to partially offset the cost of buying the April 2012 $16/$20 call spread, all for an average net premium outlay of $0.30 per contract. Of the more than 44,000 option contracts that changed hands at each strike price, it appears most of the overall volume at each was tied up in the spread. The bullish position may be a profitable one at expiration next year if Yahoo’s shares exceed the average breakeven price of $16.30. Maximum potential profits of $3.70 are available to traders should the price of the underlying soar 28.5% to exceed $20.00 at April expiration day.

Liz Claiborne, Inc. (LIZ)A large three-legged options combination on Liz Claiborne this afternoon indicates one strategist is prepared for shares in the owner of a portfolio of premium retail brands to pull back. Shares in LIZ are currently down 1.3% to stand at $8.13 as of 1:50 PM ET. It looks like the investor received a net credit of $0.01 per contract on the sale of 10,000 calls at the April 2012 $9.0 strike, and the purchase of a 10,000-lot April 2012 $6.0/$8.0 put spread. Profits over and above the net credit received on the position are available to the trader in the event that shares in the owner of Kate Spade and Juicy Couture fall 1.6% to trade below $8.00 at expiration next year. The investor may walk away with maximum potential profits of $2.01 per contract if Liz Claiborne’s shares plunge 26.2% to trade below $6.00 at expiration in April.

iStar Financial, Inc. (SFI) – A burst of put activity on iStar Financial this morning suggests at least one investor sees shares in the name heading lower over the next four months. Shares in SFI are down 5.7% this afternoon to arrive at $5.83 just before 2:00 PM in New York. Heavier-than-usual activity in SFI options centers almost exclusively in the April 2012 expiry. It looks like one trader purchased more than 3,400 puts at the April 2012 $5.0 strike for an average premium of $0.70 apiece. The put player may profit at expiration day if SFI’s shares drop 26.2% to breach the effective breakeven point at $4.30. Bearishness spread to the April $4.0 and $3.0 strikes, where it appears the trader picked up 1,100 puts and some 390 puts, at average premiums of $0.40 and $0.25 each. These deep out-of-the-money puts may yield profits to their owner in the event that iStar’s shares plunge 38.3% and 52.8% to trade beneath average breakeven points at $3.60 and $2.75, respectively. The overall reading of options implied volatility on SFI stands 15.3% higher on the day at 70.55% with less than two hours remaining to the closing bell.