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Recovery Play Initiated In Leap Wireless LEAPs As Shares Extend Losses

Posted on the 07 August 2012 by Phil's Stock World @philstockworld

Today’s tickers: LEAP, TUMI & FOSL

LEAP - Leap Wireless International, Inc. – The wireless carrier’s shares have been hard-hit in recent months, down more than 50% off the 2012 high of $11.29 as of the close of trading on Monday. The stock plunged another 22% this morning to touch down at a new 52-week low of $4.28 after the company reported a wider-than-expected second-quarter loss and revealed net subscriber losses of around 289,000 customers. Options on Leap Wireless International are more active than usual today, and it looks like one strategist is positioning to benefit from a recovery in the shares over the long term. Speculation the company may be a takeover target for one of the larger carriers has sparked sharp rallies in Leap’s shares in the past; perhaps the bull call spread initiated in the January 2014 expiry this morning is preparing to benefit from a potential repeat performance in the future. Regardless of the impetus for the position, the parameters appear to be as follows. The trader purchased a roughly 2,500-lot Jan. 2014 $5.0/$10 call spread at an average net premium of $1.10 per contract. Profits are available on the trade in the event LEAP shares surge 40% to top the average breakeven price of $6.10 at expiration. The maximum payoff on the position amounts to $3.90 per contract should the stock more than double to settle above $10.00 by expiration in January 2014.

TUMI - Tumi Holdings, Inc. – Shares in the provider of premium travel products and luggage jumped more than 22% today to $22.74 after the company posted better-than-expected earnings and sales for the second quarter. Pre-earnings bullish bets, including a block of 2,692 Aug. $20 call options purchased for a premium of $0.65 each yesterday morning, have roughly tripled in value overnight given the current premium on the $20 calls of $2.35 as of midday in New York. The stock still trades at a 14% discount to its April 27th closing high of $26.57 reached the week following the company’s April 18th IPO. The number of positions opened on Monday exceeds volume in the Aug. $20 calls so far today, suggesting call buyers have not yet traded out of their positions. The contracts may continue to appreciate in value should the price of the underlying extend gains through expiration next week. Tumi was raised to ‘Outperform’ from ‘Neutral’ with a target share price of $25.00 at Credit Suisse today.

FOSL - Fossil, Inc. – Investors in shares of watch and jewelry maker, Fossil, Inc., are recouping some of the losses suffered earlier this year when the stock plunged 40% in a 24 hour period. The stock jumped nearly 35% in today’s session to an intraday high of $93.45 after the company forecast full-year earnings that exceeded analyst estimates, on average. Even with today’s gains, however, the stock continues to trade at a 30% discount to the 2012 closing-high of $138.37. Call buying in the front month calls this morning suggests some options traders are positioning for the price of the underlying to push higher in the near term. The Aug. $90 strike call, now trading in-the-money, attracted the heaviest volume of the August expiry contracts, with more than 2,300 lots in play as of 1:00 p.m. ET. It looks like most of the calls were purchased for an average premium of $3.10 per contract. Call buyers stand ready to make money should the price of the underlying settle above the average breakeven price of $93.10 at expiration next week. Shares are currently off their highs of the day, hovering around $90.83 in early-afternoon trade. Fresh interest is also building in the Aug. $95, $100 and $105 strike calls, with contracts purchased outnumbering those sold in the first half of the session.

Caitlin Duffy
Equity Options Analyst

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Recovery Play Initiated In Leap Wireless LEAPs As Shares Extend Losses
Recovery Play Initiated In Leap Wireless LEAPs As Shares Extend Losses
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