IB Options Brief: Pentair, Inc. (PNR) & NVIDIA Corp. (NVDA)

Posted March 28th, 2012 by Caitlin Duffy in Unusual Activity

PNR ñ Pentair, Inc.
Shares in both Pentair and Tyco are trading at their highest in years on news the planned spinoff of Tycoís flow control business will merge with the operations of Pentair in an all-stock deal combining two of the largest entities in water and fluid products systems. Pentairís shares rallied as much as 21.1% to an intraday high of $48.77 on news of the deal.

Options on Minneapolis, Minnesota-based Pentair are more active than usual today compared to the stockís 90-day average options volume of 36 contracts. Traders exchanged 481 lots on PNR in the first half of the session. Overall open interest of 1,971 positions on the stock, composed of more than two calls for each single open put contract, appears in large part to have been established well in advance of todayís big news.

But, one trade initiated in the front month calls yesterday caught our attention. It looks like one trader purchased 20 calls at the April $40 strike yesterday for a premium of $0.85 per contract. The sharp move in the price of the underlying shares overnight launched premium on the $40 calls up to a last-traded price of $7.40 today, a more than eight-fold increase over the price paid per contract on Tuesday.

NVDA ñ NVIDIA Corp.
Shares in the chip maker are up 2.9% at $15.25 this morning after the stock was upgraded to ëMarket Performí from ëMarket Underperformí at JMP Securities. Call buying on NVIDIA Corp. today suggests some traders expect shares to extend gains in the next couple of months. Volume in NVDA calls is greatest out at the May $16 strike where more than 9,100 contracts changed hands against open interest of 2,637 positions.

It looks like most of the calls were purchased for an average premium of $0.58 apiece, positioning buyers of the options to profit in the event that NVIDIAís shares rally another 8.7% to exceed the average breakeven price of $16.58 by May expiration. Call buyers may be getting bullish on the stock ahead of the Santa Clara, California-based Companyís first-quarter earnings release on May 10th.

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