IB Options Brief: Tempur-Pedic International, Inc. (TPX) & Accenture PLC (ACN)
TPX – Tempur-Pedic International, Inc.
News that memory-foam mattress maker, Tempur-Pedic International, Inc., agreed to purchase Sealy Corp. sent shares in TPX up sharply on Thursday and spurred some upside call buying in the front month options. We noted yesterday that one trader, who sold put options ahead of the deal between the two mattress companies to partially offset the cost of buying a call spread on the stock, was seeing big paper profits on the bullish position.
Fast forward to Friday morning, shares in TPX are giving back some of Thursday’s gains, trading down 4% on the session to stand at $29.41 as of 11:35 a.m. ET. A new three-legged options combo play was initiated on Tempur-Pedic this morning; however, this transaction looks for shares in the mattress company to decline rather than appreciate by year end.
The trader responsible for the transaction this morning appears to have sold 500 calls at the Dec. $35 strike, exactly offsetting premium required to buy a 500-lot Dec. $26/$29 bear put spread. The position starts making money if shares dip below $29.00, with maximum potential profits of $3.00 per contract available in the event that shares in TPX drop 11.6% to trade below $26.00 by December expiration. By contrast, the bullish three-legged spread initiated on TPX on Tuesday yields maximum profits if the stock tops $35.00 at November expiration.
ACN – Accenture PLC
Shares in the second-largest technology consulting company are hitting record highs today after the firm forecast higher-than-expected full-year earnings. Shares in the name are currently up 7.6% on the day at $70.36 as of 1:05 p.m. ET. Early-bird call buyers who snapped up bullish options this morning are seeing tremendous paper profits just a few hours later.
For example, traders purchased around 390 calls at the Oct. 05 ’12 $65 strike earlier in the session paid an average premium of $3.90 apiece. Now, these deep in-the-money call options cost $5.40 apiece. Profits available to the buyer of 100 of the Oct. 05 ’12 $70 strike call at a premium of $0.15 each on Thursday afternoon are even more impressive, given the price tag on these contracts has increased more than 600% overnight to $0.95 each.
Options on Accenture are far more active than usual today, with overall volume topping 16,000 contracts versus average daily options volume of 2,655 contracts by 1:15 p.m. in New York. Most of the trading traffic is in ACN calls, with the call-to-put ratio hovering around 2.5 this afternoon.
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