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Boeing Bears Bulk Up On Put Options Ahead Of Earnings

Posted on the 24 October 2011 by Phil's Stock World @philstockworld

BA - The Boeing Co. – Weekly put options covering the commercial airline manufacturer are active ahead of Boeing’s third-quarter earnings report ahead of the opening bell on Wednesday. Shares in Boeing rallied earlier this morning, but have since turned negative to stand 0.20% lower on the session at $64.46 as of 11:25 am EDT. Put players may be picking up downside protection ahead of the earnings release should the report fail disappoint at mid-week. Traders purchased nearly 500 in-the-money puts at the Oct.’28 $65 strike for an average premium of $1.63 each, and picked up some 2,000 puts at the Oct.’28 $62.5 strike at an average premium of $0.78 apiece. Put volume at each strike is far exceeds open interest levels. Investors long the contracts may profit at expiration day if BA’s shares trade below the average breakeven prices of $63.37 and $61.72, respectively. Meanwhile, traders doubting the stock will tank on the earnings report, sold 2,196 puts at the Oct.’28 $57.5 strike to pocket premium of $0.11 per contract. Put sellers keep the premium received on the transaction as long as shares in The Boeing Company top $57.50 at expiration day this week. Traders short the puts could wind up having shares of the underlying put to them at expiration should the stock drop 10.8% from the current price of $64.46 to trade below the $57.50 strike price.

AEO - American Eagle Outfitters, Inc. – Call options on American Eagle Outfitters are on-trend with investors positioning for shares in the teen retailer to rally during the next four weeks to November expiration. American Eagle is scheduled to report third-quarter earnings ahead of the open on November 17. Shares in AEO are currently up 3.1% at $13.40 as of 11:10 am in New York. Call buying and put selling in the front month ensued within minutes of the morning bell. Investors expecting shares in the apparel and accessories retailer to increase snapped up roughly 1,800 calls at the Nov. $14 strike for an average premium of $0.46 each. Trading traffic in near-term calls was heaviest at the Nov. $15 strike, where more than 8,900 contracts changed hands against open interest of 4,829 positions. It looks like most of the Nov. $15 strike calls were purchased for an average premium of $0.22 apiece. Call buyers profit at expiration in the event that AEO’s shares surge 13.6% to surpass the average breakeven price of $15.22. Meanwhile, it appears one strategist sold around 1,000 in-the-money puts at the Nov. $14 strike for a premium of $1.00 each. The investor keeps the full amount of premium received if shares in AEO exceed $14.00 at expiration next month.

The largest transaction in AEO call options today took place in the Feb. 2012 contract, and may be the work of an investor revisiting a previously established bearish position. Alternatively, the sizable block of 14,000 calls exchanged at the Feb. 2012 $15 strike at a premium of $0.60 each could be an unrelated transaction. Call open interest at the Feb. 2012 $15 strike stands at 66,488. Of that number, 65,000 of those positions were opened back on July 7, 2011, by one strategist who likely sold all 65,000 contracts to receive a premium of $1.10 each. Maximum profits on a position such as this one are available if shares in AEO fail to rally above $15.00 at expiration in February. The 15,200 calls that traded to the middle of the market at $0.60 each today may represent profit taking if the same strategist is buying back some of the short position for gains of approximately $0.50 per contract. But, again, there’s no telling whether the strategist today and the party responsible for July’s massive transaction are one and the same. A drop in call open interest at the Feb. 2012 $15 strike from around 66,000 to about 51,000 overnight would signal an adjustment was made to the position held since July 7. Options implied volatility on the stock popped up 12.9% to 49.3% in the first half of the trading day.

BP & TOT - BP PLC and Total SA – The options player buying up BP calls and selling calls on Total has implemented this strategy for the third consecutive trading session one day prior to BP’s third-quarter earnings report, and four days ahead of Total’s earnings release. Shares in BP are down 0.85% at $41.99, while Total’s shares are up 0.30% at $52.76, as of 11:45 am on the East Coast. The investor today appears to have sold some 8,000 calls on Total at the May 2012 $55 strike for a premium of $3.10 each, roughly three minutes before buying 10,000 BP calls at the April 2012 $44 strike at a premium of $2.65 apiece. The trader paid as much as $2.89 and as little as $2.45 per contract for calls purchased on Thursday and Friday, respectively. Premium received on the sale of TOT calls today also sits between premiums of $3.30 and $3.06 pocketed on last week’s transactions. These positions, in isolation, suggest the strategist is eyeing upside potential on BP, while placing a ceiling on shares in Total at the $55.00-level. It will be interesting to see whether these positions are held through expiration next year, and if shares in these names behave as the trades predict.

 

Caitlin Duffy
Equity Options Analyst

 

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