IYT – iShares Dow Jones Transportation Average Index – Shares of the IYT are currently down 0.5% to $71.43. One option trader appears to have exchanged 19,500 contracts on the ETF to take a bearish stance through expiration in December. The three-legged trade executed on the IYT today exceeds the existing open interest of 13,323 lots by more than 6,000 contracts. The trader likely holds a long position in the underlying shares of the fund because of the placement of the options play. It appears the investor funded a put spread by selling out-of-the-money calls short. He sold 6,500 calls at the December 76 strike for 2.45 apiece. The put spread involved the purchase of 6,500 puts at the December 73 strike for 5.10 each against the sale of 6,500 puts at the lower December 67 strike for 2.70 per contract. The investor is left with a net credit of 5 pennies, which he will ultimately retain in full as long as shares of the IYT remain beneath $76.00 through expiration. Additional gains – or downside protection on a long stock position – have already kicked in for the trader given the breakeven price of $73.00 on the trade. The put spread provides maximum protection if shares decline 6% from the current price to $67.00 by expiration in December.
WYN – Wyndham Worldwide Corp. – The hospitality company appeared on our ‘hot by options volume’ market scanner this afternoon due to greater than normal call activity. Bullish option traders made moves on the stock despite the slight 0.25% dip in shares to $16.01. Traders looked to the November 20 strike where approximately 1,000 calls look to have been bought for an average premium of 45 cents each. The higher November 22.5 strike had about 8,000 calls coveted by investors who paid an average of 19 cents per contract. Call-buyers at the higher strike may garner profits if shares surge 42% from the current price to surpass the breakeven point at $22.69 by expiration in November. Wyndham has traded beneath the breakeven price described since May 20, 2008. We note that option traders exchanged 21,290 contracts on WYN today, which represents 36% of the existing open interest on the stock of 59,774 lots.
BBBY – Bed Bath & Beyond, Inc. – The home-furnishings retailer received an upgrade to ‘neutral’ from ‘sell’ at FTN Equity today ahead of its second-quarter earnings report scheduled for release after the market closes this evening. Earnings estimates for the firm range from 42 cents to 47 cents per share. BBBY has edged 0.25% higher during the session to stand at the current price of $39.55. Option traders appear to be bracing for declines in the stock. Plain-vanilla put purchases were made at the October 39 strike where 1,600 lots were picked up for an average premium of 1.37 apiece. Another investor employed a ratio put spread to hedge against potential disappointing news after the closing bell. The spread involved the purchase of approximately 2,500 puts at the October 40 strike for 2.06 each, marked against the sale of 5,000 puts at the lower October 37 strike for 85 cents per contract. The net cost of the bearish position amounts to 36 cents. The breakeven point of $39.64 has already been breached given the current share price of $39.55. The put-spread will continue to yield downside protection in case the stock falls as low as $37.00 by expiration in October.
XLU – SPDR Utilities Select Sector ETF – Shares of the utilities exchange-traded fund have improved 0.5% today to $29.62. The XLU ticker symbol jumped onto our ‘most active by options volume’ market scanner after large chunks of calls were coveted by bullish investors. The January 32 strike had 30,000 calls purchased for an average premium of 33 cents apiece. The investor responsible for the transaction likely expects the XLU to rally at least 9% by expiration so he may accrue profits above the breakeven price of $32.33. The January 31 strike was also active with about 37,800 call options picked up for 65 cents premium per contract. Profits are available in the event that shares of the ETF rise 7% to surpass the breakeven point at $31.65 by January’s expiration day.
