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Daily Options Intelligence Report

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Werner Enterprises sees bearish activity

Fri, Oct 23 2009, 05:55 GMT
by Andrew Wilkinson

Interactive Brokers LLC

WERN - Werner Enterprises, Inc. – The truckload freight services firm edged onto our ‘hot by options volume’ market scanner due to bearish trading in the June contract. Shares of WERN slipped 0.5% lower this afternoon to $20.22. One investor initiated a ratio put spread by purchasing 6,000 put options at the June 20 strike for 2.25 apiece, and by simultaneously selling 12,000 puts at the lower June 17.5 strike for 1.10 each. The net cost of the trade is reduced to just one nickel per contract. The trader is probably aiming to protect the value of a long position in shares of WERN through expiration. Downside protection will kick in if shares decline more than 27 cents from the current price given the effective breakeven point on the trade at $19.95.

MDVN - Medivation, Inc. – Long-term bearish activity in the June 2010 contract suggests one investor may be bulking up on downside protection in case shares of biopharmaceutical company, Medivation, Inc., continue to decline. The stock is currently trading less than 0.5% lower to stand at $26.51. A put spread was established through the purchase of 10,000 puts at the June 22.5 strike for 7.80 apiece, marked against the sale of 10,000 puts at the lower June 12.5 strike for 1.87 each. The net cost of the pessimistic play amounts to 5.93 per contract. The spread was most likely initiated by an investor holding a long position in the underlying shares. Putting on the protective stance shields the investor from losses beneath the breakeven point at $16.57. However, if the trader is in fact long the stock, he will suffer a 38% decline in the value of MDVN before downside protection kicks in at the breakeven price described. An alternate scenario is that the investor does not hold a long position in MDVN. If this is the case, the trader is uber-bearish and expects to garner profits from significant declines in Medivation through expiration in June.

GT - The Goodyear Tire & Rubber Co. – Option traders populated the November contract on GT with bullish plays this afternoon. Shares added more than 2.5% during the session to arrive at the current price of $17.83. Some investors targeted the now in-the-money November 17.5 strike to purchase 3,800 calls for an average premium of one dollar apiece. Other traders looked to the higher November 20 strike where 5,900 calls were coveted for about 20 cents each. Shares of Goodyear must rise 4% to $18.50 before call-buyers at the lower strike breakeven. More optimistic investors buying the higher strike calls may amass profits if shares of GT rise 13% to surpass the breakeven price of $20.20 by expiration next month. 

EBAY - eBay, Inc. – Shares of the online marketplace are trading more than 4% lower this morning to $23.94 despite the fact that the firm’s third-quarter earnings of 38 cents per share exceeded analyst expectations by a penny. Bearish movement in the price of shares today is likely due to disappointing forecasts by the company for the fourth-quarter. Option implied volatility dissipated following earnings, falling 24.40% to 22.08% as of 10:10 am (EDT). Meanwhile, option traders exchanged upwards of 60,000 contracts within the first 40 minutes of the trading session.

FFIV - F5 Networks, Inc. – Shares of the telecommunications equipment company are soaring 14.25% higher to $47.41 following yesterday’s positive earnings report. Earnings per share rose to 36 cents from the previous year’s 29 cents, while fourth-quarter revenue jumped 11% over the prior year to $175.1 million. Option traders are taking fresh positions in both calls and puts on the stock this morning. Volatility fell to 34% from 46.5% at the start of this week.

SLE - Sara Lee Corp. – A chunk of call options traded at the out-of-the-money November 12.5 strike amid a 0.7% rally in shares to $11.54. Investors may be positioning for a continued rally in the cake-maker. The spike in option implied volatility on SLE this morning points to greater uncertainty in the price of the stock going forward. Volatility surged 20% to 41.97% from an opening reading of 34.87%. 

Published on  Fri, Oct 23 2009, 06:00 GMT