IB Options Brief: Amazon.com, Inc. (AMZN), Technology Select Sector SPDR (XLK) & Morgan Stanley (MS)

Posted March 23rd, 2012 by Caitlin Duffy in Unusual Activity

Amazon.com Calls Draw A Crowd As Shares Rise

Todayís tickers: AMZN, XLK, & MS

AMZN ñ Amazon.com, Inc.
Shares in the online retailer are up the most in the Nasdaq 100, trading 1.5% higher this afternoon at $195.20. Options traders expecting the bullish momentum to continue in the near term appear to be accumulating weekly call options. Weekly volume is heaviest at the Mar. í30 $200 strike, where more than 4,300 contracts changed hands against open interest of 1,271 positions.

Trading patterns reveal a roughly even mix of buying and selling. Fresh interest in the Mar. $205 strike call, however, is mostly driven by buyers. Traders positioning for shares to post big gains next week purchased the majority of some 3,500 calls in play at the $205 strike at an average premium of $0.72 each. Buyers of these contracts profit at expiration as long as Amazonís shares rally another 5.4% to exceed the average breakeven price of $205.72.

Bullish call buying extended up to the $210 weekly calls, as well, with roughly 650 contracts purchased for $0.31 a-pop. Overall options volume of 84,300 lots stands just below the AMZNís 90-day average options volume of 87,480 lots. More than 2.5 calls are changing hands on the stock for each single put in play on the final trading session of the week.

XLK ñ Technology Select Sector SPDR
Options on the Tech ETF are among the most active today, with more than 114,000 contracts in play as of 12:15 p.m. in New York trade. Almost all of the options traded on the XLK are puts that appear to be tied up in a strategy that yields maximum gains in the event of a more than 6.0% pullback in the price of the underlying by April expiration. Shares in the XLK are currently off 0.25% to stand at $29.92 as of 12:25 p.m. on the East Coast. The bear put butterfly spreads accumulating in the April expiry options may be a protective hedge initiated by an investor locking in the % year-to-date gains in the ETF. Alternatively, the put ëfly could be an outright bearish position established in the expectation that shares in the XLK will likely experience single-digit declines in the next few weeks to expiration.

The strategist responsible for the hefty trade appears to have purchased 28,500 puts at each of the April $27 and $29 strikes, and sold 57,000 puts at the April $28 strikes, at a net premium of $0.09 per contract. The position may be profitable ñ or yield downside protection ñ at expiration if shares in the ETF decline 3.4% to breach the breakeven price of $28.91, while maximum potential profits of $0.91 per contract are available should the price of the underlying drop 6.4% to settle at $28.00. Shares in the XLKís largest constituent, Apple, Inc., are down slightly more than the Tech SPDR this afternoon, trading 0.40% lower at $597.00. The put ëfly may provide some protection against further near-term declines in the price of AAPL shares for an investor long the stock or with broader tech-sector exposure.

MS ñ Morgan Stanley
Activity in Morgan Stanley options suggests some traders are positioning for shares in the financial services provider to rally to their highest since August 2011 during the next five trading sessions. Shares in MS are currently up 3.0% at $20.17 just after midday in New York. Weekly call buying is heaviest at the Mar. í30 $21 strike, where more than 5,000 contracts changed hands against 1,184 positions in the first half of the session. It looks like traders purchased most of the calls for an average premium of $0.17 apiece, thus positioning buyers to profit should Morgan Stanleyís shares climb 5.0% to top $21.17 by expiration.

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