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Options Update: ADC Telecommunications Inc. (ADCT) & KB Home (KBH)

ADCT – ADC Telecommunications Inc.

Shares of the telecommunications equipment manufacturer fell 15% this morning to $5.66 and was downgraded to ‘accumulate’ from ‘buy’ at Craig Hallum. ADCT’s shares slipped after the firm forecast first-quarter revenue of $250-$275 million and stated client spending is likely to decline.

Despite the gloomy reports, option traders initiated bullish stances on the stock. It appears some 3,100 in-the-money calls were purchased for an average premium of 90 cents apiece at the December 5.0 strike. Shares of ADCT must increase above the breakeven point at $5.90 by expiration in order for call-buyers to accrue profits on the trade.

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KBH – KB Home

Perhaps a little nervous about how the remainder of the trading session might unfold, one option trader banked profits today by closing out a previously established short put position on the homebuilding company. Shares of KB Home are currently down 3.5% to $14.10. The investor originally sold 15,200 puts short at the November 14 strike for a premium of 50 cents per contract back on October 9, 2009. Today the trader reeled in net profits of 35 cents apiece – for total gains of $532,000 – by buying back the puts for just 15 cents.

Next, it appears like the same trader employed a similar strategy in the December contract. Approximately 14,000 puts were sold short today at the December 14 strike for an average premium of 90 cents apiece. The investor keeps the full premium if shares remain above $14.00 through expiration next month. The trader may also decide to close out the short position ahead of expiration as was the case with the November contract transaction. The December contract breakeven stands at $13.90 on account of today’s premium of 90 cents. Below that point the investor will bear rising losses should shares fall further.

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