IB Options Brief: Bed Bath & Beyond, Inc. (BBBY) & Rio Tinto PLC (RIO)

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

BBBY ñ Bed Bath & Beyond, Inc.
Shares in the operator of retail chain stores Bed Bath & Beyond, Christmas Tree Shops and others, kicked off the final trading session of the week in positive territory, but have since surrendered earlier gains to trade 0.60% lower on the session at $66.30 as of 11:30 a.m. in New York. Call volume on Bed Bath & Beyond spiked this morning after one strategist initiated a ratio spread in the May expiry.

The trader appears to have purchased 2,000 calls at the May $67.5 strike and sold 4,000 calls at the May $70 strike, receiving a net credit $0.05 per contract on the position. If shares settle below $67.50 at May expiration, the trader walks away with $0.05 per contract in hand.

The trader adds to that amount as long as BBBYís shares rally 1.8% to surpass the breakeven price of $67.50, with maximum possible profits of $2.55 per contract available if shares surge 5.6% to settle at a fresh record-high of $70.00 at expiration. Bed Bath & Beyond, Inc. reports fourth-quarter earnings after the final bell this coming Wednesday.

RIO ñ Rio Tinto PLC
The worldís third-largest mining company popped up on our scanners this morning due to heavier-than-usual trading activity in call options. Volume building at the May $57.5 strike suggests one or more traders are gearing up for shares in Rio Tinto to extend gains in the near term. The stock rallied as much as 2.3% in the first half of the U.S. trading day to secure an intraday high of $55.71.

Options players positioned to benefit from further upside moves in the share price exchanged more than 8,000 calls at the May $57.5 strike against open interest of just 234 contracts. It looks like most of the calls in play were purchased for an average premium of $1.82 apiece. Call buyers stands ready to profit should shares in the worldís second-largest iron ore exporter rally another 6.5% to top the average breakeven price of $59.32 at expiration in May.

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