Thursday's Options Outlook: CSCO, CROX, JAH, ENER, PSUN

by: Interactive Brokers

Cisco (NASDAQ:CSCO) - Shares in the network hardware maker extended yesterday’s post-earnings losses with a .74% decline to $25.58. But while shares are responding to a muted forecast for sales over the next two quarters, some option traders took the contrarian tack this morning by buying heavily into June 29 calls. The 11,000-lots traded here represented some 16% of the total morning volume in Cisco, which continues to rank among the most actively traded on our platform. These contracts, which cost a meager 15 cents apiece, look like a bold bid on a return to price levels not observed in Cisco since late December. Elsewhere it appears that a 5,000-lot straddle position may have been deployed at the July 25 line, but we have no information on the directionality of the trade.

Crocs (NASDAQ:CROX) – Is this a sucker’s reprieve for the fad shoe maker, or signs of renewed life? Shares gained nearly 19% to $11.84 on higher-than-expected profit guidance. But while the plasticized shoes continue to attract wearers in the form of kids, nurses, and casual comfort-seekers, its share price remains wedged barely $2 above the 52-week-low, having traded as high as $75.21 over the past year. We wonder whether Crocs is vulnerable to the one-two punch of fickle fashion tastes AND higher production costs in the form of petroleum by-products. Some option traders may be wondering the same thing – while call volume outflanks that of puts by more than 3 to 1 this morning, the only real one-sided buying action occurs at the in-the-money May $10 strike. Traders have readily taken both sides of the trade at call strikes 11, 12 and 13 in the front-month contract.

Jarden Corp (NYSE:JAH) – Option traders have turned volatility sellers in this niche consumer products maker. Shares in the company, whose array of products ranges from coffeemakers and animal grooming products to snowboards and camping gear, declined more than 15% after it posted better-than-expected quarterly profits but net sales fell short of analyst consensus. In a statement, the company’s CEO said that the current recessionary environment was having “a negative impact” on consumer confidence and retail sales. With shares at $20.04 – within $1 of the 52-week low – implied volatility at 53.4% continues to show a 25% elevation above the historic reading, which hints strongly that option traders feel the full impact of the earnings report hasn’t been priced into the stock. This kind of discrepancy tends to pad premiums, and it looks like the 10-fold increase in option volume may be due to traders selling that fortified premium in the October contract at the 20 put line (for $2.30) and the 25 call line (for $1.20). Jarden shares have been rangebound between those two strike prices since late-February, and sellers of those contracts expect them to remain so heading into the fall.

Energy Conversion Devices (NASDAQ:ENER) - Options volume in this Nasdaq-listed maker of thin-film solar laminates that convert sunlight to energy surged to 13 times the normal level this morning. Shares in the company, whose products are marketed under the Uni-Solar brand name, soared more than 37% to a new 52-week high of $47.89 after its Q3 profits soundly beat street expectations and delivered in-line guidance for Q4. With the equivalent of nearly half its open interest in play, trading 3 times as often to calls as to puts, traders are playing the short-term on Energy Conversion Devices, with fresh two-way traffic in calls at strikes of 45 and 50.

Pacific Sunwear of California (NASDAQ:PSUN) – Shares in the surf-themed teen apparel label known as “PacSun” rose 2% after reporting a 4% rise in same-store sales for the month of April, lower than analysts had anticipated, as a rise in spring clothing sales was cancelled out by lower accessories and footwear sales. Option traders sent volume to 7 times the normal level, with more than half today’s volume concentrated in June 12.50 calls, which traded 11,000 times at around $1, in excess of open interest.

Rebecca Engmann Darst contributed to this report.

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