Monday Options Brief: PWRD, HAR & AVL

Includes: AVL, HAR, PWRD
by: Interactive Brokers

PWRD – Perfect World Co., Ltd. – Options on Perfect World Co., Ltd. are more active than usual today with shares in China’s largest online game developer and operator down 27.0% at $8.77 this afternoon. The stock plunged after a report posted on Chinese blog Tianya alleged the Company is being investigated by Chinese and U.S. regulators. Short notes out on Bloomberg this morning suggest the report has been removed from the blog and that Perfect World has since denied the allegations. Options players snapped up both call and put options in the front month to prepare for either a rebound in the price of the underlying or further declines in the next two weeks. Investors bracing for further bearish movement in the shares purchased in- and out-of-the-money puts. Volume is heaviest at the Jan. $11 strike where some 2,415 deep in-the-money puts changed hands against open interest of 441 contracts. It looks like trader purchased the majority of these puts for an average premium of $0.58 a-pop. The Jan. $9.0 and $10 strike puts also drew buyers, and appear to have been purchased more than 1,000 times each at average premiums of $0.43 and $0.54, respectively. Finally, the Jan. $8.0 strike puts changed hands more than 500 times against open interest of just 52 contracts today. Investors purchased most of the volume, paying an average premium of $0.26 each. Put buyers targeting the $8.0 strike contracts may profit at expiration if shares in PWRD drop 11.7% from the current price of $8.77 to breach the average breakeven point on the downside at $7.74. Meanwhile, traders prepared to see the stock rebound picked up more than 1,350 calls at the Jan. $10 strike for an average premium of $0.51 per contract. Profits may be available to call buyers at expiration day if shares in the game developer rally 20.0% to top $10.51. Overall options volume on the name is greater than 12,400 contracts as of 1:35 PM in New York, which compares to overall open interest on the stock of 13,489 positions.

HAR – Harman International Industries, Inc. – Heavier-than-usual call options activity on the maker of high quality audio products and electronic systems this morning may be the work of an investor taking a bullish stance on Harman International Industries ahead of the Company’s second-quarter earnings report on February 2. Shares in Harman are up 0.80% this afternoon at $39.84 as of 12:30 PM in New York. A single block of 2,200 calls changed hands at the Feb. $42.5 strike against open interest of just 20 contracts, indicating the trade is an opening position. Likely purchased outright for a premium of $1.50 each, the call options position the trader to potentially profit at expiration should HAR’s shares climb 10.4% to top the effective breakeven price of $44.00. Shares in the name last traded above $44.00 back in November.

AVL – Avalon Rare Metals, Inc. – Shares in the rare metals exploration company are up 7.4% at $3.05 in early-afternoon trade, perhaps rallying in sympathy with Rare Element Resources Ltd. (NYSEMKT:REE) following the release of a positive report regarding mineral resource estimates in three deposits located in Wyoming. One investor positioning for shares in Avalon Rare Metals to extend gains in the near term appears to have purchased more than 1,200 in-the-money calls at the Jan. $3.0 strike for an average premium of $0.18 each. Profits may be available to the call buyer at expiration should Avalon’s shares rally another 4.3% to surpass the average breakeven point at $3.18. Lighter call buying at the Feb. $4.0 strike took place seconds after the bulk of the volume changed hands in the January expiry. It looks like 140 calls were picked up at the Feb. $4.0 strike for an average premium of $0.10 apiece. These options may be profitable at February expiration in the event that AVL shares surge 34.4% to surpass the effective breakeven price of $4.10.