Mid-day Flow Summary
Mid-day Flow Summary, 24 April 2007 12:00 ET
Target (TGT)
We are seeing relatively high volume in options on retailers this morning, with buyer-dominated flow in both calls and puts. The most active in the sector is Target (TGT), where nearly 5000 May 65 calls have traded at the 10 cent price level. While the stock is currently under $60.00, earnings are expected several days prior to May expiration. This position may be a low cost upside play or possibly insurance for a large short-stock position.
In the downside strikes, we’ve seen buyers of several thousand May 60 and 57.5 Puts coinciding with a general increase in implied volatility. This suggests that there is interest in a potential downside move as well.
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Express Scripts (ESRX)
Options on drug retailer Express Scripts (ESRX) are active today, in tandem with the stock’s post-earnings 8% rally. The stock is near $96.00 and the May 100 Calls have traded more than 4000 contracts so far. The flow shows that buyers are creating new open interest and looking for continued upward movement in the stock over the short term.
AK Steel (AKS)
AK Steel (AKS) options are trading triple their average volume today following this morning’s release of earnings. The largest trade involved a June 25-30 Call spread on the Amex. More than 10,000 spreads were sold for a net price of $3.15. The open interest suggests that this is most likely a roll of 25 strike calls purchased over prior months when the stock was trading near $23.00. The stock is now over $30, and a roll of this type would allow the trader to take significant profits now while maintaining additional upside participation should the rally continue.
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About Henry Schwartz
Henry Schwartz has traded derivatives on US and European exchanges for nearly 20 years. His experience includes market-making and institutional trading at the Hull Group, Salomon Brothers, Bear Stearns and most recently Banc of America Securities, where he led the electronic market-making project coincident with the launch of the ISE. His current work involves real-time stream analysis of options market activity for a number of leading institutional sell-side firms.
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