IB Options Brief: Sears Holding Corp. (SHLD) & Rock-Tenn Co. (RKT)

Posted August 30th, 2012 by Caitlin Duffy in Unusual Activity

SHLD ñ Sears Holding Corp.
The department store operatorís shares are getting hit hard today, down as much as 8.1% to $52.77, after Standard & Poorís announced Wednesday the stock will be dropped from the S&P 500 Index next week. Weekly put activity on Sears Holding Corp. early in the trading session suggests one or more options traders are positioning for the stock to extend losses ahead of the holiday weekend.

Traders exchanged more than 1,500 puts at the Aug. 31 í12 $52.5 strike this morning against open interest of 487 contracts, and appear to have purchased most of the volume for an average premium of $0.35 apiece. Put buyers stand ready to profit at expiration in the event SHLD shares slip another 1.2% to breach the average breakeven point on the downside at $52.15. The stock is down nearly 40% off the March 16, 2012, 52-week high of $85.90, but remains up 65% year-to-date.

RKT ñ Rock-Tenn Co.
Packing products manufacturer, Rock-Tenn Company, popped up on our scanners this morning after one options market participant initiated a sizable bear put spread on the stock. Shares in the producer of recycled paperboard and corrugated packaging are off 0.40% today at $66.27 as of midday in New York. The trader responsible for the largest transaction in RKT options today may be taking an outright bearish stance on the stock, or could be hedging a long position in the underlying shares.

It looks like the strategist purchased a 1,000-lot Oct. $60/$65 put spread for a net premium of $1.85 per contract, which yields profits ñ or downside protection ñ if shares in RockTenn decline 4.7% to breach the effective breakeven point at $63.15. Maximum possible gains of $3.15 per contract are available on the spread should the price of the underlying stock drop 9.5% from the current price of $66.27 to settle at or below $60.00 at October expiration.

The companyís Chairman and CEO, James A. Rubright, is scheduled to speak at the Bank of America Merrill Lynch 2012 Global Industrials & Materials Conference next Wednesday afternoon in Boston.

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