Today’s tickers: COH, WPI, HAL, XLB, ORCL & XLY
COH – Coach Inc. – It’s amazing the power of the dividend, As banks’ management around the country have learned to their collective cost, dividends are important. And today Coach played its trump card by initiating a sweetener in the face of stronger than anticipated earnings accompanied by signs that consumer demand for handbags and purses might be stabilizing. Shares responded by jumping 12.6% to $20.55 as the luxury accessory retailer contradicted other retail reports of late by stating that it appears weakness in consumer activity might have bottomed out. Investors used call option contracts to latch onto the rising share price and in paying 1.05 for May options at the 21.0 strike, they are hoping that shares will continue to rally beyond a breakeven of $22.05. Only 241 contracts of established open interest were evident ahead of today’s report. Option implied volatility declined 18% to 58%, as shares traded as high as $21.62 earlier.
WPI – Watson Pharmaceuticals, Inc. – The off-patent and brand pharmaceuticals manufacturer has experienced a more than 3% share price rally to $30.74 today ahead of its first quarter results scheduled for release on April 30th. One news source has broadcast rumors that Teva Pharmaceuticals Industries Ltd., may be interested in acquiring Watson as the trend toward consolidation in the pharmaceuticals industry continues. Option traders were seen making bullish plays on the stock by purchasing calls in the nearby May contract. The now in-the-money May 30 strike price had 2,400 calls purchased for 1.55 apiece while the higher May 35 strike price enticed bulls to buy more than 4,400 call options for a premium of 44 cents each. WPI shares would need to rally by about 15% to the breakeven point at $35.44 in order for investors to garner profits on the latter strike. Call option premiums have been on the rise along with the underlying share price, while option implied volatility has spiked as high as 53% today from yesterday’s reading of 41%. More than 18,000 contracts traded on WPI by midday compared to a total existing open interest on the stock of 26,000 lots.
HAL – Halliburton Company – The oil and gas company’s shares have jumped by more than 5% to $19.82, prompting one investor to establish a bull call spread in the May contract. It appears that this trader purchased 9,500 calls at the in-the-money May 19 strike price for 1.59 apiece and simultaneously sold 9,500 calls at the May 20 strike price for 1.06 each. The call spread strategy yields a maximum potential profit of 47 cents if shares can rally to $21.00 by expiration. It would appear that this investor’s minimum hope is for shares to remain in-the-money by expiration in order to establish a long position. Further along in the July contract, traders picked up 1,800 calls at the July 21 strike price for an average premium of 1.48 each as well as 2,100 puts for 2.15 apiece at the in-the-money July 20 strike in case shares should reverse direction.
XLB – Materials Select Sector SPDR – Shares of the materials ETF have rallied by 2% to $23.80. Options activity on the stock was mixed as some investors looked for upside movement in the shares while others sought downside protection. The June 24 strike price attracted one trader who does not see today’s rally continuing through the summer months as he sold 2,000 calls for 1.25 apiece in order to fund the purchase of 2,000 puts at the same strike for 2.00 per contract. The net cost of his bearish stance amounts to 75 cents and yields profits to the downside beginning at the breakeven point of $23.25. In contrast, another investor is hoping for the rally to continue as he purchased approximately 16,000 calls at the June 26 strike price for an average premium of 61 cents apiece. Shares would need to rise by at least 12% to the breakeven price of $26.61 for this trader to begin to amass profits from his optimistic position by expiration in June.
ORCL – Oracle Corporation – Shares have increased by more than 3% to $19.45 for the software company as it continues to pursue its $5.6 billion, all-cash deal, to purchase Sun Microsystems, Inc (JAVA). Notable options activity on the stock pointed to investors who see shares of ORCL moving downward in the short term. The May 19 strike price attracted fresh buying interest as more than 7,500 puts were coveted for an average premium of 53 cents per contract. These put options begin to yield profits to the downside beginning at the breakeven share price of $18.47. Alternatively, one trader took in a 15 cent premium today on the short sale of 3,200 calls at the June 23 strike price. This trade suggests that he does not see shares rising through the breakeven point at $23.15 by expiration as he would face unlimited losses to the upside on the short position.
XLY – Consumer Discretionary Select Sector SPDR – Shares of the ETF have increased by less than 1% to $21.85. One uber-bullish investor selected the May 25 strike price where he purchased more than 5,000 call options for 10 cents apiece. Shares would need to hop, skip, and jump upwards by about 14% in order for the call options to land in-the-money by expiration. Perhaps this trader is simply looking for the share price and implied volatility on the stock to rise over the next month and boost the call premium so that he may sell the 5,000 lots at a profit. Elsewhere, it appears that an investor banked gains on calls bought during the recent rally for shares in the ETF where we saw volume of 13,400 call options trade to the 1.29 bid in the June 22 strike. Meanwhile, some 8,500 24 strike calls appear to have been purchased for a 63 cent premium, which could represent a roll-up by the same investor.