Options Intelligence Report: Dean Foods Co. (DF), Cardinal Health, Inc. (CAH), Priceline.com, Inc. (PCLN)
Contrarian Players Digest Dean Foodsí Woes, Position For Rebound By June Expiration
DF ñ Dean Foods Co.
Shares of the food and beverage company, which operates Dean Foodís Dairy Group ñ the largest processor and distributor of milk and other dairy products in the United States, are down 7.45% to $9.69 just before 11:00 am (ET). Dean Foodsí share price plummeted 36.13% since May 7, 2010, when the stock touched an intraday high of $14.75, down to todayís intraday low of $9.42.
The rapid decline in DFís share price inspired a swarm of analyst downgrades. Analysts at Sanford Bernstein cut the stock to ëmarket performí from ëoutperformí while an analyst at UBS downgraded DF to ëneutral from ëbuyí. Pessimism on Dean Foods stems from the firmís reported 43% decline in first-quarter net income and suspension of its full-year earnings forecast.
Despite the turmoil, options activity on the stock this morning indicates some investors expect shares are unlikely to sink much lower. Traders positioned for a rebound in the price of the underlying stock by purchasing approximately 1,800 calls at the June $10 strike for an average premium of $0.66 apiece. Call-buyers make money if Deanís shares rally 10% over the current price of $9.69 to surpass the average breakeven point at $10.66 ahead of June expiration.
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CAH ñ Cardinal Health, Inc.
Put activity on the provider of various products and services to the healthcare industry suggests investors are bracing for share price erosion ahead of June expiration. Cardinalís shares spent the better part of the morning session vacillating about Mondayís closing value of $34.96.
Investors piled into put options at the June $35 strike where approximately 5,000 contracts appear to have been purchased for an average premium of $1.41 per contract. Put buyers may be securing downside protection on long positions in the underlying shares, or could be establishing outright bearish bets on the stock.
Plain-vanilla put buyers expecting shares to decline make money if Cardinalís share price slips beneath the average breakeven price of $33.59 by June expiration. The surge in demand for put contracts on the stock lifted the overall reading of options implied volatility on CAH by roughly 21.8% to 32.32% as of 11:15 am (ET).
PCLN ñ Priceline.com, Inc.
Bearish investors are shedding out-of-the-money call options on the second-largest online travel agency today with shares of the underlying stock lower by more than 15% to $212.06. Pricelineís shares slipped after the firm said second-quarter profit is likely to disappoint due to weakness in the Euro and other factors foiling consumersí travel plans.
Pessimists expressed doubts for a near-term rebound in PCLNís share price by selling calls in the May contract. It looks like approximately 1,300 calls were shed at the May $250 strike for an average premium of $0.41 apiece. The lower May $240 strike had roughly 1,000 calls sell for an average premium of $1.12 per contract.
Call sellers keep the premium received as long as shares of the underlying stock fail to rally above the strike prices described through May expiration day. Options implied volatility on the stock is down 17.7% to 52.82% as of 11:25 am (ET).
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