IB Options Brief: Nu Skin Enterprises, Inc. (NUS) & Red Hat, Inc. (RHT)

Posted March 29th, 2012 by Caitlin Duffy in Unusual Activity

NUS ñ Nu Skin Enterprises, Inc.
Bearish activity in Nu Skin Enterprises, Inc. options is on the rise this morning with shares in the maker of anti-aging skin products and other personal care items trading down 4.4% at $56.85 as of 11:15 a.m. in New York. Traders picking up $55 strike put options in April and May today appear to be positioning for the price of the underlying shares to extend losses in the near term.

Front month $55 puts changed hands more than 800 times in the first half of the session against open interest of 55 contracts. Put players purchased the majority of the puts for an average premium of $1.15 apiece, with profits available on the position in the event that shares in Nu Skin drop another % to trade below the breakeven price of $53.85 by expiration.

Volume of 1,500 puts exchanged at the May $55 strike is almost twice that of the same-strike options expiring in April. It looks like most of the May expiry puts were purchased for an average premium of $2.30 per contract. Traders long the puts profit at expiration if shares in Nu Skin Enterprises decline 7.3% to breach the average breakeven point on the downside at $52.70. The skincare products provider is scheduled to report first-quarter earnings on May 3rd.

RHT ñ Red Hat, Inc.
Better-than-expected fourth-quarter results from the maker of Linux software blew the lid right off Red Hatís prior 52-week high of $54.01, as investors sent the stock up 18.0% to $60.62, the highest share price in more than a decade. Options on Red Hat lit up with activity straight out of the gate this morning, with more than 35,500 contracts having changed hands so far today versus the stockís 90-day average options volume of 4,383 contracts.

Traders eyeing further upside potential on the shares looked to the April $60 and $65 strike calls. More than 4,100 in-the-money calls traded at the April $60 strike against open interest of 538 positions, with much of the volume generated by buyers paying an average premium of $1.26 apiece. Traders paid an average of $0.36 per contract for more than 1,000 calls at the higher April $65 strike, which may pay off at expiration in the event that Red Hatís shares rally another 7.8% over todayís high to surpass the average breakeven share price of $65.36.

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