Monday Options Brief: FOSL, MS & VMED

Includes: FOSL, MS, VMED
by: Interactive Brokers

FOSL - Fossil, Inc. - A sizable bearish spread initiated in watchmaker, Fossil, Inc., this morning suggests it may be the right time to pick up some downside protection on the stock ahead of the Company's first-quarter earnings report due out Tuesday before the open. Shares in Fossil are currently down 1.15% at $127.71 as of 11:15 am in New York. The ratio put spread could be an outright bearish stance on the stock, or may be a hedge to protect the value of a long position in the underlying. Shares in Fossil are up big time year-to-date, having soared approximately 60.0% in the first four months of the year. Downside protection to lock in some of the stock's gains may prove a prudent move should a disappointing report on Tuesday morning send shares sharply lower. It looks like one trader purchased 1,125 puts at the May $120 strike for a premium of $3.80 each and sold 2,250 puts at the lower May $105 strike at a premium of $0.90 apiece. Net premium paid to establish the spread amounts to $2.00 per contract, with profits - or downside protection - available in the event that shares drop 7.6% to breach the effective breakeven price of $118.00. Maximum potential profits of $13.00 accrue to the downside if the watchmaker's shares plunge 17.8% to settle at $105.00 at expiration in less than two weeks. Fossil's shares last traded below $105.00 back in February.

MS - Morgan Stanley - Selling of weekly call and put options on Morgan Stanley this morning suggests shares in the financial services firm may luff around the $16.00 level through expiration. Shares are currently up 1.0% on the day at $16.16 just before midday in New York. It's been a tough five weeks for MS investors, with April showers washing away the stock's strong run during the first quarter of the year. The sale of $16 strike calls and puts implies shares may be less volatile in the short term. More than 3,500 of the May 11 '12 $16 strike call and put options changed hands at the start of the session, with call sellers pocketing an average premium of $0.33 apiece, and put sellers $0.29 each. Sellers walk away with the full amount of premium in hand as long as shares in Morgan Stanley settle at $16.00 at expiration this week. Strong upside moves could result in losses for call sellers, while put sellers may be saddled with stock put to them if the contracts land in-the-money.

VMED - Virgin Media, Inc. - The provider of broadband services in the U.K. popped up on our scanners this morning due to an uptick in bearish activity in the options. Shares in Virgin Media are down 0.80% at $22.48 just before 11:40 am ET. The heaviest trading traffic in Virgin options is out in the September expiry, where one strategist appears to have purchased 1,500 of the $22 strike puts at a premium of $1.45 apiece. Profits may be available to the put buyer should shares in VMED decline 8.6% to slip beneath the effective breakeven price of $20.55 by September expiration. Virgin Media's shares traded down to a 52-week low of $20.52 on December 19, 2011.