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Heavy Action In BP Call Options With Earnings On The Horizon

Posted on the 02 February 2012 by Phil's Stock World @philstockworld

Today’s tickers: ZNGA, UPS & SXC

ZNGA - Zynga Inc. – Options on the social game developer behind wildly popular games such as Words with Friends and FarmVille continue to trade at a Facebook-IPO-induced fever pitch today. Investors exchanged roughly 45,000 option contracts on Zynga by 12:30 p.m. in New York, while the price of the shares reached new heights one day after the highly-anticipated Facebook filing became a reality. Shares in ZNGA rallied as much as 21.8% in the first half of the trading session to an all-time high of $12.91. Out-of-the-money call buying in the front month suggests some traders are positioning for the price of the underlying to extend gains in the near term. February $13 strike call options that cost around $0.15 apiece at the beginning of the week, are now more than five times as expensive given the current asking price of $0.80 per contract. Traders looked to the Feb. $14 and $15 strikes, buying calls this morning at average premiums of $0.35 and $0.22 each, respectively. Call buyers may profit at expiration if Zynga’s shares continue to post strong gains in the next few weeks, but only risk losing the premium paid for the options should the stock’s run-up reverse course. Meanwhile, buyers of some 5,000 puts at the Feb. $12 strike stand to profit in the event that Zynga’s shares pull back off their highs ahead of expiration. Investors that bought into Zynga call options weeks ago when shares in the game developer were down sharply off their December-IPO price of $10.00 saw, in some cases, the value of their positions sky-rocket this week. Traders that paid an average premium of $0.85 apiece for Feb. $8.0 strike calls back on January 9 now find those call options cost $4.30 each as of 1:00 p.m. in afternoon trade.

UPS - United Parcel Service, Inc. – A burst of call activity on UPS one hour into the trading session on Thursday suggests traders may be gearing up for shares in the logistics company to rally to fresh multi-year highs ahead of March expiration. Shares in United Parcel Service, Inc. reversed earlier gains to trade 0.40% lower on the day at $76.48 as of 11:45 a.m. in New York. Call volume is concentrated at the Mar. $80 strike, where nearly 13,000 contracts changed hands against open interest of 3,583 positions. The single largest print, a block of 8,506 Mar. $80 strike calls, appears to have been purchased for a premium of $0.28 each. The investor responsible for the transaction may profit at expiration in the event that shares in UPS gain 5.0% to exceed the effective breakeven price of $80.28. On Tuesday, UPS revealed earnings of $4.35 a share in 2011, the most profitable full-year for the Company since before the recession. Following earnings, analysts at Sterne Agee maintained a ‘Buy’ rating on UPS and raised their share price target to $110.00.

SXC - SunCoke Energy Inc. – The producer of metallurgical coke, which became a 100% publicly-traded company in January after Sunoco Inc. distributed its remaining shares of SunCoke common stock to Sunoco shareholders, popped up on our scanners due to heavier-than-usual activity in March expiry call options. Shares in SunCoke Energy are up 0.90% this afternoon to stand at $14.32 this afternoon, a few hours before the Company releases fourth-quarter earnings after the close. It looks like one strategist purchased around 1,000 calls at the Mar. $15 strike for an average premium of $0.40 apiece to position for shares in SunCoke to extend gains. The trader stands ready to profit should SXC shares climb another 7.5% to surpass the effective breakeven price of $15.40 at expiration next month.

Caitlin Duffy
Equity Options Analyst

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Heavy Action In BP Call Options With Earnings On The Horizon
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