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Michael Kors Options On Trend After Earnings Blowout

Posted on the 14 February 2012 by Phil's Stock World @philstockworld

Today’s tickers: KORS, AMLN & ACI

KORS - Michael Kors Holdings Ltd. – A number of options strategists appear to have benefitted handsomely from bullish positions held in the House of Kors today, with shares in the luxury retailer ballooning on better-than-expected third-quarter earnings. Shares in Michael Kors Holdings Ltd. have more than doubled since the December IPO, trading 22.7% higher on the day at $41.25 as of 11:40 a.m. Options on Kors are abuzz with after-earnings activity, with around 3.6 call options changing hands for each single put option in play. Some traders that placed bullish bets on the retailer in the weeks leading up to earnings in some cases saw the value of their positions sky-rocket. One buyer of a 1,500-lot Feb. $34/$37 call spread at an average net premium of $1.05 per contract on Feb. 9th may reel in maximum possible profits on the position at expiration, given shares in KORS are now trading well above the upper $37 strike. Call open interest in the front month is heaviest at the $33 strike where more than 5,480 positions were opened before today. It looks like most of the volume was generated in a single block of 4,831 calls that traded at $1.15 each on Feb 7th. The calls traded to the middle of the market one week ago with the bid/ask showing $1.05/$1.30. Today, these deep in-the-money calls trade at bid/ask of $8.20/$8.40 as of 12:15 p.m. The impact of better-than-expected earnings on the shares certainly makes for a happy Valentine’s Day for the trader in the event he or she purchased the contracts last week or a rather Grey day were the calls originally sold. Finally, investors positioning for shares in Kors to extend gains snapped up in-the-money calls at the $40 strike in February and March, as well as picked up around 255 calls out at the May $44 strike at an average premium of $1.56 each.

AMLN - Amylin Pharmaceuticals, Inc. – Shares in the biopharmaceutical company went the way of the broader market this morning, trading down 1.5% to stand at $17.33 as of 11:15 a.m. in New York. The maker of medicines to treat diabetes this week announced that BYDUREON, the first and only once-weekly treatment for type 2 diabetes approved by the FDA back on January 27, 2012, for adults with the disease, is now available in U.S. pharmacies by prescription. News of the FDA approval last month sent shares in Amylin sharply higher, with the stock gaining more than 50.0% to top out at $18.30 in the weeks following the announcement. A large call spread initiated on the drug maker today suggests one strategist is positioning for the shares to continue to post big gains in the next few months. It looks like the investor purchased a roughly 11,000-lot April $21/$24 call spread at an average net premium of $0.58 per contract. The trader may profit at April expiration in the event that AMLN’s shares rally another 25.0% over the current price of $17.33 to surpass the average breakeven price of $21.58. Maximum potential profits of $2.42 per contract are available on the spread if Amylin’s shares surge 38.5% to top $24.00 at expiration. The April contract calls expire on the 20th of that month, two days after Amylin Pharmaceuticals reports first-quarter earnings.

ACI - Arch Coal, Inc. – The downhill slide in Arch Coal’s shares, which have dropped more than 60.0% since this time last year, may not be over, according to one trader establishing a bearish stock and option combination today. The coal producer’s shares are currently down 3.7% on the day to stand at $13.35 as of 12:35 p.m. on the East Coast. The purchase of 5,000 call options at the Mar. $14 strike could be mistaken for a bullish play on the beaten-down stock, until you take a look at the sale of 200,000 shares of the underlying tied to the options. It looks like the trader responsible for the combo purchased the 5,000 calls at a premium of $0.50 apiece and sold 200,000 shares of ACI at $13.255 each on a 40 delta. The long call options are a hedge against potential losses to the upside in the event of a coal-stock-comeback, while the short position in the underlying benefits the investor if shares continue to pullback to fresh 52-week lows.


Caitlin Duffy
Equity Options Analyst

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