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Green Mountain Jitters Continue To Drive Heavy Trading In Options-Land

Posted on the 20 October 2011 by Phil's Stock World @philstockworld

GMCR - Green Mountain Coffee Roasters, Inc. – Shares in Green Mountain Coffee Roasters turned positive earlier in the session, but are now continuing to unravel on the heels of a roughly 25.0% decline in price since hedge fund manager David Einhorn of Greenlight Capital presented analysis of the coffee company at an investor conference on Monday. Over the past month, the stock has fallen as much as 45.0% to touch today’s intraday low of $63.26 since reaching the September 20, 52-week high of $115.98. Frenzied trading in GMCR options continues today, following similarly active sessions earlier in the week. Investors are exchanging calls and puts in relatively equal numbers, with puts outpacing calls slightly in early-afternoon trade.

The front month garnered the most attention from options players placing short-term bets on the stock ahead of expiration at the end of the week. Investors hoping the stock has reached a bottom appear to have purchased in- and out-of-the-money calls, and sold puts. Meanwhile, concerned parties wary the stock could extend losses snapped up puts. The bears bought around 1,100 puts at the Oct. $55 strike for an average premium of $1.09 each. These deep out-of-the-money put options may expire worthless at expiration if shares in GMCR fail to drop sharply by the end of the trading week. But, the puts could provide quick profits for some traders if premium on the contracts rises with either volatility or further declines in the price of the underlying. The most active put on Green Mountain is the Oct. $65 strike, where nearly 6,000 puts changed hands against open interest of 1,539 positions. Trading patterns in the puts reveal mixed opinion.

Investors itching for a quick rebound in GMCR purchased October contract calls. More than 7,000 calls have traded at each of the Oct. $70 and $75 strikes. While both buyers and sellers drove volume in the contracts, there does appear to be somewhat of a bullish bias thus far today. Traders long the calls may profit at expiration should the week wrap up with shares in Green Mountain back on track. Overall volume in GMCR options is just under 100,000 contracts as of 2:10 pm on the East Coast.

BP & TOT - BP PLC & Total SA – Big prints in call options on European oil behemoths, BP and Total, shed some light on one strategist’s view of which company’s shares may bloom come spring 2012. Earlier in the session, Total SA, Europe’s third-largest oil company, popped up on our ‘hot by options volume’ market scanner after a block of 8,500 calls changed hands at the May 2012 $55 strike against open interest of 385 contracts. The call options were sold outright for an average premium of $3.06 each. The transaction in Total calls today is relatively large next to overall open interest on the stock of 136,679 contracts. Total’s open interest pales in comparison to BP’s, which is greater than 1.29 million contracts. Roughly 30 minutes before the call activity in Total appeared on our scanners, it looks like the same investor purchased 8,500 call options on BP at the April $44 strike for a premium of $2.45 apiece.

The so-called dispersion trade seems to reveal a strategy that benefits the investor most if Total’s shares flounder and BP’s shares spike by the assigned May and April expiration dates, respectively. Looking at these positions one at a time, the trader may walk away with the full $3.06 premium on the sale of Total calls as long as the price of the underlying fails to rally above $55.00 by May expiration. Meanwhile, the long stance in April $44 strike calls on BP may be a profitable one should the stock rally 14.0% over the current share price of $40.73 to surpass the breakeven point at $46.45 by expiration day in April. Total’s shares are currently up 1.05% at $51.47 as of 2:00 pm in New York.

MSFT - Microsoft Corp. – Options on the software giant are the most actively traded by volume on any single stock ahead of the company’s much-anticipated first-quarter earnings report. Investors have exchanged more than 320,000 contracts on Microsoft Corp. as of 12:20 pm in New York. The stock currently trades 2.3% lower on the day at $26.51. Trading traffic is heaviest by far in call and put options with one full trading day remaining until expiration. Fresh prints in the newly available weekly options on MSFT point to mixed opinion on the direction the underlying shares are likely to take in the near term. Roughly one hour into the session, it looks like one or more traders snapped up 2,000 puts at the Oct. $25 strike for an average premium of $0.15 a-pop. Put buyers at this strike make money if shares in Microsoft drop 6.6% from the current price of $26.51 to breach the effective breakeven point on the downside at $24.75 at expiration next week. Investors may be outright bearish, using the long puts to speculate on a potential pullback in the price of the underlying within the next six trading sessions. Alternatively, put buyers may be long the stock and securing downside protection heading into earnings. Options implied volatility on MSFT is higher by 14.6% to stand at 33.2% this afternoon.

OSK - Oshkosh Corp. – Activity in Oshkosh Corp. options suggest some strategists are taking bearish stances on the stock ahead of the specialty vehicle maker’s fourth-quarter earnings report on November 1. Shares are down 4.4% at $17.97 as of 12:40 pm EDT. Put buying on the manufacturer of defense trucks and emergency vehicles commenced straight out of the gate this morning. It looks like one trader is likely responsible for the bulk of the volume, which is greatest in the November contract. Some 1,200 puts changed hands at the Nov. $16 strike against 66 open positions. Nearly all of these put options appear to have been purchased for an average premium of $0.70 each. Profits are available on this position in the event that OSK’s shares tumble 14.9% to breach the effective breakeven point at $15.30 by November expiration day. Another 1,100 puts traded at the lower Nov. $15 strike against open interest of 36 contracts. The majority of these options were purchased for an average premium of $0.48 each. Shares in OSK dipped to as low as $14.07 as recently as October 4. Options implied volatility on Oshkosh Corp. popped 13.3% in early-afternoon trade to 79.7%.

Caitlin Duffy
Equity Options Analyst

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Green Mountain Jitters Continue To Drive Heavy Trading In Options-Land
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