IB Options Brief: DreamWorks Animation SKG, Inc. (DWA) & Home Depot, Inc. (HD)

Posted April 5th, 2012 by Caitlin Duffy in Unusual Activity

DWA ñ DreamWorks Animation SKG, Inc.
The maker of animated feature films appeared on our ëhot by options volumeí market scanner this morning after a large bullish spread was initiated in the September expiry. The transaction, comprising a total of 15,000 contracts, starts making money if DreamWorks Animationís shares post double-digit gains in the next six months to expiration. Shares in DWA are currently down 0.50% at $17.73 as of 12:30 p.m. on the East Coast.

The trader responsible for the transaction appears to have sold 7,500 puts at the Sep. $15 strike for a premium of $0.65 apiece in order to buy the same number of calls up at the Sep. $20 strike at a premium of $1.00 each. Net premium paid to initiate the trade amounts to $0.35 apiece, thus positioning the trader to profit in the event that shares in DreamWorks rally another 15.0% to top the effective breakeven price of $20.35 by September expiration.

HD ñ Home Depot, Inc.
The home improvement retailerís shares are once again hitting fresh multi-year highs, with the stock up 1.4% on the day at $50.56 as of 12:35 p.m. in New York trade. Call activity on Home Depot suggests at least one strategist is gearing up for the bullish momentum to continue in the near term. The front month calls saw most of the action in the first half of the session, with more than 11,800 contracts in play at the April $52.5 strike against open interest of 1,253 positions.

It looks like the majority of the calls were purchased for an average premium of $0.10 apiece. Call buyers only ever risk losing the premium paid for the contracts in the event that the $52.5 strike are worthless at expiration, but could reel in hefty profits should shares extend gains during the next couple of weeks. Profits are available to call buyers if Home Depotís shares rally another 4.0% to surpass the average breakeven price of $52.60 by expiration.

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