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Bearish Options In Play As Monster Beverage Shares Sell Off

Posted on the 10 August 2012 by Phil's Stock World @philstockworld

Today’s tickers: MNST, MHP & ANN

MNST - Monster Beverage Corp. – Monster Beverage Corp. shareholders have had a rough week; the stock fell 10% yesterday following the company’s second-quarter earnings report and fell nearly 10% today to as low as $55.30 after Monster disclosed a subpoena from a state attorney general. According to the firm’s 10-Q the subpoena was received in July 2012 “in connection with an investigation concerning the Company’s advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand of energy drinks.” August expiry options activity suggests traders anticipate the stock may continue to selloff next week. The Aug. $55 strike put is the most heavily traded of the front month contracts so far today, with around 3,700 lots in play as of 12:10 p.m. ET. It looks like most of the $55 puts were purchased for an average premium of $1.01 apiece, thus positioning buyers to make money beneath the average breakeven price of $53.99. Traders betting on a more substantial pullback in Monster’s shares in the near term picked up around 1,000 put options at each of the Aug. $50 and $47.5 strikes, paying average premiums of $0.25 and $0.14 per contract, respectively. Traders betting against the likelihood of a rebound in MNST shares next week wrote call options at the Aug. $57.5 and $60 strikes, pocketing average premiums of $1.26 and $0.37 on the contracts. Call sellers keep the premium as long as the contracts are out-of-the-money at expiration. Overall options volume on the stock is well above the 90-day average daily volume, and roughly two puts are trading for each single call option in play.

MHP - McGraw-Hill Companies, Inc. – Trading traffic in far out-of-the-money call options on McGraw-Hill may be the work of an investor positioning for shares in the publishing giant and owner of Standard & Poor’s to rally to the highest since 2007. Shares in MHP are up 0.85% today at $49.12 as of 12:30 p.m. in New York. The stock has gained 25% since September 2011 when the company announced plans to separate into two public companies, McGraw-Hill Financial and McGraw-Hill Education. The purchase of 1,500 calls at the Feb. 2013 $60 strike this morning for an average premium of $0.32 apiece may pay off next year if the stock rallies nearly another 25% during the next six months. The buyer of the options makes money if shares in McGraw-Hill surge 22.8% over the current price of $49.12 to top the average breakeven price of $60.32 by February expiration.

ANN - Ann, Inc. – A number of bearish options trades initiated in Ann, Inc. this morning suggests shares in the retailer, currently down 1.9% at $27.55 as of 11:30 a.m. ET, may extend losses next week. The company is scheduled to report second-quarter earnings ahead of the opening bell next Friday. Traders positioned to benefit from further declines in the price of the underlying purchased around 2,500 puts at the Aug. $27 strike for an average premium of $0.55 each. Put buyers make money if shares in ANN slide 4% to settle below $26.45 at options expiration. Meanwhile, one strategist betting ANN’s shares are unlikely to soar to a new 52-week in the next five trading sessions sold 2,500 calls at the Aug. $30 strike, pocketing $0.15 in premium per contract in the process. The trader keeps the full amount of premium received on the transaction as long as shares settle below $30.00 at expiration. The call seller faces unlimited losses to the upside above the breakeven price of $30.15 unless the options were written against a long position in the underlying shares. The stock would need to rally more than 9% over the current price in order for the position to start losing money. Finally, bearish positioning spread to the September expiry options where one or more traders purchased some 300 in-the-money puts at the Sept. $28 strike and 200 lots at the Sept. $27 strike at average premiums of $1.70 and $1.15 apiece, respectively.

Caitlin Duffy
Equity Options Analyst

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Bearish Options In Play As Monster Beverage Shares Sell Off
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