Business Magazine Call Options In Play As Shares Move Higher

Posted on the 13 January 2012 by Phil's Stock World @philstockworld

Today’s tickers: CTRP, MBLX & MFC

CTRP - International, Ltd. – The travel service provider’s shares, which failed to join in on the stock market rally at the end of 2011 and beginning of the New Year, continue to buck the trend today, rallying 2.5% to $24.40, on a mostly down day for equities. Options activity in the front month suggests at least one strategist expects CTRP’s shares to extend gains in the near term. Shares in the provider of information on hotel reservations, airline tickets and packaged tours for business and leisure travelers in China tanked during the prior 12-month period, with the stock down more than 50.0% off the 52-week high of $50.57 set back in April. An upgrade of CTRP to ‘positive’ from ‘neutral’ with a 12-month target share price of $37.00 at Susquehanna may have helped spur bullish action in the options today. Volume is heaviest at the Jan. $26 strike where more than 2,800 calls changed hands against open interest of 620 contracts. The majority of the calls were purchased for an average premium of $0.29 each, implying potential profits for buyers if’s shares rally another 7.75% to exceed the average breakeven price of $26.29 at expiration next week. The front month calls expire ahead of the Company’s fourth-quarter earnings release scheduled for February 13.

MBLX - Metabolix Inc. – Shares in Metabolix more than halved Friday on news Archer Daniels Midland Co. ended a joint venture with the plant-derived chemical producer. The already badly-bruised stock is now down more than 55.0% on the day at a record low of $2.65 as of 12:00 PM in New York. Put options on Metabolix are changing hands more than eight times for each single call option in play on the stock, but it looks like the bulk of the puts are being sold by traders expecting shares to exceed $2.50 through January expiration. The Jan. $2.5 strike put options are most active today, with more than 750 contracts in play at that strike against zero open positions. Traders appear to have sold the majority of the puts to take in an average premium of $0.16 per contract. Put sellers walk away with the full amount of premium in pocket if the puts expire worthless next week. Strategists run the risk of having shares in Metabolix put to them at an average price of $2.34 each – after factoring in premium received on the sale of the options – should the puts land in-the-money at January expiration. Finally, the value of June $5.0 strike puts purchased on MBLX this past Tuesday when shares were hovering around $5.50 skyrocketed with the nosedive in the share price. It looks like some 150 June $5.0 strike puts that were purchased for an average premium of $0.55 each on Tuesday now cost nearly five times as much, or $2.60 each, at last check. Metabolix was cut to ‘hold’ from ‘buy’ at Jefferies today.

MFC - Manulife Financial Corp. – Canadian insurer Manulife Financial Corp. popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a bearish put spread in the February contract. Manulife was raised to ‘buy’ from ‘market perform’ with a 12-month target share price of C$15.00 at Cormark Securities today, though shares in the Toronto, Ontario-based Company went the way of the market, falling 1.1% to $11.53 in the first half of the trading session. The options player responsible for the largest trade on MFC this morning may be putting on the spread to hedge a position in the stock ahead of earnings, or perhaps to take an outright bearish stance on the stock through expiration. Manulife Financial is scheduled to report fourth-quarter earnings ahead of the opening bell on February 9. It looks like the investor purchased a 1,118-lot Feb. $10/$12 put spread for a net premium of $0.80 per contract. Profits, or downside protection, kick in on the downside if shares in Manulife decline 2.9% to breach the effective breakeven price of $11.20. Maximum potential profits $1.20 per contract are available on the trade if the price of the underlying drops 13.3% to settle below $10.00 at expiration.

Caitlin Duffy
Equity Options Analyst

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