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Daily Options Intelligence Report

Delta options busy as shares continue skywards

Tue, Sep 15 2009, 17:02 GMT
by Andrew Wilkinson

Interactive Brokers LLC  |  View company's profile

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DAL – Delta Air Lines, Inc. – Shares of the world’s largest airline have continued to rally today with the stock currently standing 5% higher to $9.08. Optimism surrounding DAL stems from speculation that the firm will attempt to take a stake in Japan Airlines, which could facilitate greater access to China’s air traffic market. Bullish options activity was observed in the December contract where it appears one investor rolled a long call position to a higher strike. It appears that the trader originally purchased 4,000 calls at the now in-the-money December 9.0 strike for about 40 cents apiece when shares were trading at about $6.79. The trader watched the value of the calls appreciate since establishing the long position given the 34% rally in shares experienced by DAL over the past few weeks. Today the investor banked profits of approximately 85 cents per contract, or $340,000, by selling the same 4,000 calls for 1.25 each. Next, the trader showed his continued bullish sentiment on Delta by reestablishing a long call position at the higher December 11 strike, where he purchased 4,000 calls for 55 cents per contract. Additional profits are available to the investor if shares of DAL rally another 27% to breach the breakeven price of $11.55 by expiration in December.

TER – Teradyne Inc. – After an upgrade from Oppenheimer, shares at the chip-testing equipment maker are 12% stronger at $9.27. Options were unusually active after the analyst noted that the Teradyne had been successful in cost-cutting and had delivered a blow to its competitors having secured a new contract to Qualcomm Inc. – maker of chips for wireless communication devices. Option volume of 57,000 contracts was at least 13-times more active than usual. A block of close to 30,000 calls were purchased for 1.0 apiece at the 10.0 strike expiring in January. We believe this was part of a trade in which the investor banked gains on the closing sale of around 19,000 call options expiring at the same January strike but now at the deep-in-the-money 7.5 strike. There, open interest of 20,785 lots supports that theory while the sale of the calls to the bid tends to corroborate the trader’s rationale. The trader has shifted from a 77 delta to a 46 delta, which means that the calls might benefit from leverage more at the higher strike in the event of further gains in the share price. The 7.5 strike calls lose that benefit as they become deeper set in-the-money. Shares at Teradyne are knocking on the door of a 52-week high of $9.32.

SCHW – The Charles Schwab Corp. – The financial services firm edged onto our ‘hot by options volume’ market scanner this morning after bearish traders engaged in plain-vanilla put buying on the stock. Shares of Schwab have surrendered approximately 3% during the trading session to stand at $17.77. Investors looking to profit from continued declines by September’s expiration day this Friday, purchased about 3,000 puts at the now in-the-money September 19 strike for 80 cents each. Traders holding these contracts could potentially sell-to-close the puts and bank gains by lunchtime because the same put options now tote an asking price of 1.30 each. Traders were also seen buying up puts at the deeper in-the-money October 20 strike where 1,200 puts were picked up for 2.10 each. An entirely different strategy was initiated in the December contract where it seems a short strangle employed. The December 18 strike had 2,500 calls sold for 1.23 each while the December 15 strike had 2,500 puts sold for 45 cents apiece. The gross premium pocketed on the transaction amounts to 1.68, and will be fully retained as long as shares remain ‘strangled’ within the strike prices described through expiration day.

KR – Kroger Co. – Despite today’s positive retail sales data for Wall Street, supermarket Kroger confessed to a miss on its earnings as its strategy of lowering prices aimed at luring customers fell victim to deflation at the food price level. A near 10% miss on its EPS accompanied by a reduction in the full-year forecast for earnings helped shift its shares into a low gear, slumping by 8% to stand at $20.32. Option volumes were ten-times the norm with 23,000 lots at play. The 52-week low of $19.39 is currently at stake following today’s slippage. Still, investors seemed content to write about 6,000 puts at the 20 strike for as little as a dime expiring at the weekend indicating that they don’t see shares slipping much further ahead of then. October 20 strike puts were also heavily populated as close to 5,000 contracts were traded at a 50 cent premium. Both October and January expiration 22.5 strike calls were also reasonably well bought.

Published on  Tue, Sep 15 2009, 17:04 GMT

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