IB Options Brief: Herbalife, Ltd. (HLF), Illumina, Inc. (ILMN) & Williams-Sonoma, Inc. (WSM)
HLF – Herbalife, Ltd. – Options on Herbalife continue to change hands at a clip on Thursday, one day after Pershing Square Capital Management founder, Bill Ackman, announced a short position in the stock that sent shares in the marketer of weight management products down as much as 15% during trading on Wednesday. The stock extended losses today, sliding 8% in the early going to $34.33, the lowest level since February 2011.
Upwards of 71,000 put and call options have changed hands on Herbalife as of 12:55 p.m. ET, with around 1.5 puts changing hands on the stock for each single call option in play. Some traders appear to be positioning for shares in the name to hit lower lows by the end of this week, while others establish contrarian bets on the name that benefit from a pop in the price of the underlying during the next 24 hours.
Bears anticipating a sharp drop in shares of Herbalife in the very near term appear to be buying out-of-the-money puts across several strike prices in the December expiry. Meanwhile, call buying at the Dec. $35, $37.5 and $40 strikes looks for the stock to rebound substantially by expiration.
ILMN – Illumina, Inc. – Shares in biotechnology company, Illumina, Inc., jumped 9.25% this morning to a new 52-week high of $57.00 on unconfirmed reports that Swiss drug maker, Roche Holding AG, may be in talks to purchase Illumina at a substantially sweetened price of $66.00 a share or $8.1 billion. San Diego, California-based Illumina’s shares have rallied more than 80% since the start of the year on speculation the provider of DNA sequencing technology may be acquired.
Options volume on Illumina is up sharply on the session, with some 14,000 contracts in play on the stock as of midday in New York, versus average daily options volume of around 2,200 lots. A number of strategists appear to be buying upside calls on the takeover chatter, snapping up in- and out-of-the-money calls in the December and January expiries.
The Dec. $55 and $57.5 strike calls, which have one full trading session remaining to expiration, attracted buyers in the early going. Trading traffic in call options expiring the third Friday of the New Year are looking for shares in the name to rise sharply during the next four weeks.
Options players appear to have purchased approximately 1,000 calls at the Jan. 2013 $62.5 strike calls for an average premium of $0.96 apiece. Buyers of these contracts profit at expiration next month should shares in ILMN rally another 11% to top the average breakeven price of $63.46.
Traders also picked up around 600 of the Jan. 2013 $65 strike calls at an average premium of $0.45 each, and may profit in the event of a 15% move to the upside to exceed $65.45 by expiration.
WSM – Williams-Sonoma, Inc. – Put options on the retailer of high-quality home goods are changing hands this morning, with shares in the name trading slightly lower on the session, down 0.20% at $44.54 as of 12:15 p.m. ET. Put buyers taking to Williams-Sonoma in the early going appear to be positioning for shares in the name to pullback somewhat during the next four weeks.
Traders appear to have purchased 1,000 in-the-money puts at the Jan. 2013 $45 strike for an average premium of $1.60 apiece. The bearish position starts making money if shares in the retailer slip 2.6% from the current level to breach the effective breakeven point on the downside at $43.40 by January expiration.
The stock has rallied more than 30% since mid-January, although trades roughly 7% below the November 2nd 52-week high of $48.07 as of the time of this writing.
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