IB Options Brief: Wal-Mart Stores, Inc. (WMT) & Shutterfly, Inc. (SFLY)

Posted April 17th, 2012 by Caitlin Duffy in Unusual Activity

WMT ñ Wal-Mart Stores, Inc.
The value of a sizable bullish bet initiated in Wal-Mart call options yesterday ballooned overnight, as shares in the retailer extend their run to the upside for a second straight day. Shares in WMT are currently up 2.05% at $61.81 as of 11:35 a.m. in New York, the highest since mid-February, on positive U.S. same-store sales data.

On Monday, WMT popped up on our market scanners after a large block of 7,242 April $60 strike calls traded at the asking price of $0.51 per contract. The jump in open interest overnight indicates the transaction was an opening position.

Assuming the calls were purchased to play out bullish expectations for the shares, rather than, say, a hedge related to short stock, the call buyer has more than tripled his or her money overnight with the contracts today trading around $1.85 apiece.

SFLY ñ Shutterfly, Inc.
Shares in the operator of Shutterfly.com and Tinyprints.com are continuing to recover from the sharp pullback spurred last week by Facebookís agreement to purchase photo-sharing app, Instagram. SFLY rallied as much as 3.8% this morning at $30.26, but put spreads initiated on the stock this morning suggest recent gains may be short lived.

Bearish trades on SFLY may pay off if the stock reverses recent gains in the aftermath of the Redwood City, California-based companyís first-quarter earnings report next Friday. It looks like one or more traders purchased 2,000 puts at the May $30 strike and sold the same number of puts at the lower May $25 strike, all for a net premium outlay of $1.75 per contract.

Profits are available on the strategy in the event that shares in Shutterfly decline 5.1% from the current share price of $29.77 to breach the effective breakeven point at $28.25, while maximum potential profits of $3.25 accrue to the downside should the stock drop 16.0% to settle below $25.00 by expiration next month.

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