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Constellation Brands Bulls Make Bank As Shares Soar To 5-Year High

Posted on the 29 June 2012 by Phil's Stock World @philstockworld

Today’s tickers: STZ, EL & SKS

STZ - Constellation Brands, Inc. – Cheers to traders that got long call options on beer distributor Constellation Brands prior to- and following reports AB InBev NV may purchase the rest of Grupo Modelo SAB for $20.1 billion. Constellation’s shares spiked 14.0% on Monday with deal-chatter a-brewing and exploded to the upside today on news the company will purchase the other half of Crown Imports, a joint venture with Grupo Modelo, making Constellation the sole U.S. importer of Corona and Crown’s other brands. Shares in STZ jumped nearly 26% today to a new 5-year high of $27.40, driving up the value of Constellation Brands call options. One Monday we noted the purchase of around 1,500 of the July $20 strike calls, initiated back on Friday, June 22nd, at $0.40 per contract. The big move in the stock on Monday saw the value of the contracts increase five-fold over the weekend to $2.30. Today it looks like the value of the long $20 strike call position is up 1,625% over the original purchase price based on the call’s last traded price of $6.90. Traders that snapped up Aug. $20, $22.5 and $25 strike calls on Constellation on Monday are also sitting pretty today, with triple digit percentage increases in premium in each of those contracts this afternoon.

EL - Estee Lauder Companies Inc. – Shares in the maker of skin care, makeup and fragrance and hair care products sold under brands including La Mer and Bobbi Brown rallied 2.6% to $54.32 at the start of the session, helped higher by positive news out of Europe and an ‘Outperform’ rating initiated at Wells Fargo. The stock is off its highest levels of the session and options activity on the stock suggests the shares could reverse gains in the near term. Front month puts are the most active options on Estee Lauder this morning, with more than 3,100 puts trading at the July $50 strike against open interest of 269 contracts. It looks like nearly all of the puts were purchased at a premium of $0.35 each. Buyers of the put options may profit at expiration next month should shares in the cosmetics maker decline 7.3% from the current price of $53.58 to trade below the breakeven point at $49.65.

SKS - Saks, Inc. – The high-end retailer’s shares are moving higher today on an upgrade to ‘Overweight’ from ‘Neutral’ with a share price target of $12.00 at JPMorgan today amid the backdrop of a market moving broadly higher on developments in Europe. Saks, Inc. shares are currently up 2.1% at $10.60 just before 1:00 p.m. in New York, trading off an earlier intraday high of $10.89 that saw shares climb nearly 5.0% at the open. Saks options have been more active than usual recently and it looks like trading in the front month calls yesterday may have landed at least one trader with sizable overnight profits. Open interest in the July $10 strike call increased by 1,058 contracts overnight to total 4,138. Time and sales data for the trades suggest the contracts were mostly purchased for an average premium of $0.25 apiece. Bid/ask premiums on the $10 calls are currently at $0.65/$0.75; but earlier in the session, when shares in the retailer were up around their highs of the day, approximately 1,000 of the calls were sold at a premium of $0.90 each. If buyer and seller are one and the same (which may or may not be the case) the sale of the contracts this morning results in sizable overnight profits of $0.65 per contract for a net gain of 260% on the position.

Caitlin Duffy
Equity Options Analyst

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