Options Intelligence Report: Symantec Corp. (SYMC), Hospira Inc. (HSP) & Ethan Allen Interiors, Inc. (ETH)
Evidence Of Guarded Optimism On Symantec As Strategist Enacts Delta Neutral Hedge
SYMC ñ Symantec Corp.
A sizeable delta neutral transaction on the provider of security, storage and systems management solutions indicates one options strategist is cautiously optimistic that Symantecís shares are on the up-and-up. SYMCís shares rallied 1.90% during the session to stand at $15.00 as of 3:40 pm (ET). The bullish trader appears to have established a delta neutral put and stock trade, buying 26,500 puts at the October $15 strike for an average premium of $0.98 apiece using a .46 delta, and tied to $14.96 stock.
Time and sales on SYMC reveals one massive purchase of approximately 1.25 million shares of the underlying for a volume-weighted average price of $14.96 at roughly the same time the puts were transacted. This type of trading strategy suggests the investor, who is now long the stock, is expecting shares to rally ahead of October expiration. The put options serve as an insurance policy for the trader in case shares fail to perform as he expects they will in the next several months to expiration.
HSP ñ Hospira Inc.
The specialty pharmaceutical firm appeared on our ëhot by options volumeí market scanner in afternoon trading after one options investor purchased a long strangle in the August contract. Hospiraís shares are up 1.25% to arrive at $58.96 just minutes before the closing bell. The strangle-strategist purchased 1,350 calls at the August $65 strike for a premium of $0.30 each and picked up the same number of puts at the lower August $55 strike for a premium of $0.80 apiece. The net cost of the transaction amounts to $1.10 per contract.
The nature of the long strangle indicates the responsible party expects a dramatic shift in the price of the underlying shares by August expiration. Perhaps the trader is eyeing the companyís upcoming second-quarter earnings report scheduled for July 28, 2010, and thusly positioning for a big shift in share price following those results. Regardless of the motivation behind the trade, the investor is prepared to profit should Hospiraís shares rally 12.1% over the current price to surpass the upper breakeven point on the trade at $66.10, or if HSPís shares plummet 8.6% to breach the lower breakeven price of $53.90, ahead of August expiration day.
The strangler may also benefit from increases in premium on the options, which typically accompany large upward shifts in the overall reading of options implied volatility on the stock. We note Hospiraís shares havenít come close to reaching $66.10 in the past 5 years, but have traded as low as $36.58 in the past 52-weeks. Shares breached the lower breakeven price of $53.90 as recently as June 11, 2010.
ETH ñ Ethan Allen Interiors, Inc.
Shares of the manufacturer and retailer of home furnishings and accessories are trading just under 8.5% higher on the day to arrive at $14.86 as of 12:45 pm (ET). One long-term bullish investor targeted the November contract call options in order to position for continued appreciation in the price of the underlying stock. The options strategist initiated a plain-vanilla call spread, buying 1,000 deep in-the-money calls at the November $12.5 strike for a premium of $3.40 apiece, and selling the same number of calls at the higher November $17.5 strike for a premium of $0.80 each. The net cost of the transaction amounts to $2.60 per contract.
Thus, the optimistic individual stands ready to profit should Ethan Allenís shares increase another 1.6% to surpass the effective breakeven point on the spread at $15.10 by November expiration day. The investor walks away with maximum potential profits of $2.40 per contract if the furniture makerís shares rally 17.75% over the current price of $14.86 to exceed $17.50 by expiration. Options implied volatility on Ethan Allen plunged 11.7% to 58.61% by 12:50 pm (ET).
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained fromthe use of this information. Past performance is not necessarilyindicative of future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this materialare not suitable for all investors. Any opinions expressed herein aregiven in good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take intoaccount your particular investment objectives, financial situations orneeds and is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particularcircumstances and, as necessary, seek professional advice.
View Andrew Wilkinson's post archive >