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Takeover Chatter Sparks Heavy Volume In Electronic Arts Options

Posted on the 16 August 2012 by Phil's Stock World @philstockworld

Today’s tickers: EA, BKS & SNDK

EA - Electronic Arts, Inc. – Speculative bullish bets are on the rise in Electronic Arts this morning after the New York Post reported, according to unnamed sources, that the second-largest U.S. video game publisher has been approached by private equity firms and may be interested in a $20.00 a share deal. The latest from the rumor mill sent shares in EA up as much as 10% to $14.39 and drove options volume to roughly 10 times the average daily volume by 12:30 p.m. in New York. More than 63,000 contracts have traded on Electronic Arts so far today, with approximately three calls changing hands for each single put option in play. Traders looking for further upside in the near term picked up calls at the Sept. $14 and $15 strikes, paying average premiums of around $0.83 and $0.47 apiece, respectively. The largest trade in EA options this morning was the purchase of a block of 15,855 of the Sept. $16 strike call at a premium of $0.25 each. The buyer of the contracts stands ready to profit at expiration next month should EA shares surge 18% over the current price of $13.78 (EA share price as of 12:45 p.m. ET) to top the breakeven point at $16.25. Of course, the strategist could lose the full $0.25 in premium paid to establish the position should shares remain south of the $16.00-level at expiration.

BKS - Barnes & Noble, Inc. – Bears are snapping up downside puts on Barnes & Noble for a second consecutive day as shares in the bookseller continue to sell off. Shares are down 1.3% on the day at $12.38 in afternoon trading. The most active contracts are the Sept. $11 strike puts that have changed hands 2,200 times in the first half of the session against open interest of 1,589 contracts. It looks like most of the puts were purchased at a premium of $0.90 each, thus positioning buyers to profit at September expiration if shares slide at least 18% to the breakeven point at $10.10. Bearish strategists who picked up BKS put options on Wednesday saw the value of their positions rise overnight as the stock extended declines. The traders purchased around 1,600 of the Sept. $12 strike puts yesterday at an average premium of $0.88 each, and are now holding options with elevated bid/ask prices of $1.25/$1.45 as of 1:00 p.m. ET.

SNDK - SanDisk Corp. – Shares in the world’s largest provider of flash memory storage solutions are up 2.25% this afternoon at $42.50, and options action in the October expiry calls and puts suggests one or more traders may be positioning for further upside. It looks like strategists sold around 2,300 puts at the Oct. $38 strike for an average premium of $1.19 each in order to partially offset the cost of buying roughly 2,300 of the Oct. $45 strike calls for an average premium of $1.39 apiece. The average net cost of the trade amounts to $0.20 per contract and makes money if shares in SanDisk rally another 6% to exceed the breakeven price of $45.20 by October expiration. Shares in SanDisk last traded above $45.20 in April.

Caitlin Duffy
Equity Options Analyst

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Takeover Chatter Sparks Heavy Volume In Electronic Arts Options
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