IB Options Brief: Shutterfly, Inc. (SFLY)

Posted April 10th, 2012 by Caitlin Duffy in Unusual Activity

SFLY ñ Shutterfly, Inc.
The selloff in shares of Shutterfly continued for a second-straight day on news Facebook will pay roughly $1 billion to buy Instagramís photo-sharing application. SFLYís shares are 4.4% lower today to stand at $26.98, but have lost 60.0% of their value in the past 52 weeks since reaching an all-time high of $66.70 back on April 28, 2011. Some traders appear to be positioning for the pullback to continue for Shutterfly, while others may be taking a chance on a recovery play.

Put buying at the June $22.5 strike, where some 600 contracts changed hands against 302 open positions, suggests some traders are prepared for the price of the underlying to extend losses. It looks like most of the $22.5 strike put volume was initiated by buyers shelling out an average premium of $1.15 per contract. Traders long the puts stand ready to profit should shares in SFLY plunge 21.0% to breach the lower breakeven price of $21.35 by June expiration.

May contract call activity, however, could be a sign of optimism by one or more traders. It appears a roughly 650-lot May $30/$35 call spread was purchased this morning for an average net premium of $1.00 per contract. If the call spread was purchased outright, rather than as a hedge for a short stock position, the strategy points to expectations for a near-term rally in the shares. The debit call spread is profitable as long as shares in Shutterfly rally at least 14.9% to top $31.00 by May expiration. Maximum potential profits of $4.00 per contract are available on the spread in the event that shares soar 30.0% to trade above $35.00. SFLYís shares last exceeded $35.00 back in November.

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