IB Options Brief: Morgan Stanley (MS) & Blue Nile, Inc. (NILE)
MS ñ Morgan Stanley
It looks like some Morgan Stanley options players paid heftier premiums than necessary for downside puts this morning. Reports that Moodyís may cut its rating on MS by up to three notches sent shares in the financial services firm down as much as 4.0% to $18.20, sparking demand for downside protection. The shaky start to the trading day was short-lived, however, as better-than-expected economic data spurred a market rally and lifted shares in Morgan Stanley 0.30% to $19.02 by12:35 p.m. in New York. But, before equities staged their mid-morning comeback, shares in Morgan Stanley were among those names in selloff mode.
Options traders positioning for the pullback to continue had purchased around 15,000 puts at the Mar. $17 strike for an average premium of $0.58 each. The intraday recovery, however, has pushed the price tag on the puts down to $0.41 per contract. Premium required to secure the right to sell shares in MS at $17.00 at expiration has dipped nearly 30.0% since the puts were purchased. In contrast, traders that saw an opportunity to get long calls at reduced premiums during the earlier selloff picked up roughly 6,000 May $20 calls at an average premium of $1.12 each. These call options currently cost 23.0% more, or $1.38 per contract, as of 12:45 p.m. ET. Of course, circumstances for these put and call buyers could always reverse as evidenced by the market shifts already observed today.
NILE ñ Blue Nile, Inc.
Put activity on the online jewelry retailer suggests some traders are preparing for the price of the underlying to hit fresh 52-week lows by March expiration. Shares in Blue Nile today fell as much as 19.9% to $33.51 after the Company reported weaker-than-expected fourth-quarter earnings and guidance for the first quarter and full year. The stock has somewhat recovered as of 12:00 p.m., but remain deeply in the red, down 12.05% at $36.79. Analysts at a number of firms lowered their price targets on the stock today, including analysts at Deutsche Bank who cut their target to $21.00 from $24.00.
Bearish options looking for shares in Blue Nile to further tarnish in the next few weeks picked up around 930 puts at the Mar. $30 strike for an average premium of $0.63 apiece. The majority of these contracts were purchased in a single block of 758 contracts in the first hour of the session. Put buyers may profit at expiration next month should shares in the online retailer decline another 20.2% to breach the effective breakeven price of $29.37. Shares in Blue Nile dipped to as low as $30.32 in the past 52 weeks, but havenít traded below $29.37 since March 2009.
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained from theuse of this information. Past performance is not necessarily indicativeof future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this material arenot suitable for all investors. Any opinions expressed herein are givenin good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take into accountyour particular investment objectives, financial situations or needsand is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particular circumstancesand, as necessary, seek professional advice.
View Caitlin Duffy's post archive >