Options Intelligence Report: H&R Block, Inc. (HRB), SPDR S&P Retail ETF (XRT) & Garmin, Ltd. (GRMN)
H&R Block put options in play as shares drop
HRB ñ H&R Block, Inc.
Investors are bulking up on H&R Block put options this afternoon following reports the provider of tax services acquired tax-preparation firm 2SS Holdings for $287 million in cash. HRBís shares dropped like a rock today, falling as much as 10.445% during the session to hit an intraday low of $12.26.
Options traders basically ignored the existence of H&R Block calls and instead focused their efforts on buying up bearish put contracts across several expiries. More than 7.95 put options changed hands on HRB for each single call option in play on the stock as of 3:15 p.m. in New York trading. The sharp increase in demand for put options and the rapid descent in the price of the underlying shares fueled a 33.3% rise in the overall reading of options implied volatility on the stock to 70.39% late in the trading day. Pessimistic players picked up 5,600 now in-the-money puts at the October $12.5 strike for an average premium of $0.24 each.
These contracts expire tomorrow, but investors may make money if HRBís shares trade below the average breakeven price of $12.26 ahead of expiration. Put volume is most significant in the November contract. It looks like investors picked up 9,300 puts at the November $10 strike at a premium of $0.38 each, coveted another 10,300 contracts at the November $11 strike for premium of $0.57 apiece, and purchased approximately 2,500 puts at the November $12 strike for a premium of $0.81 a-pop.
Volume in put options generated at each of the strikes described outweighs previously existing open interest at each one many times over. Put players may be scrambling to secure downside protection on existing positions in the underlying shares, or could be enacting outright bearish bets on the stock. HRBís shares are down 9.50% at $12.39 with 35 minutes remaining in the trading session.
XRT ñ SPDR S&P Retail ETF
It looks like one well-positioned retail sector bull booked profits by unraveling a previously established debit call spread in the December contract this afternoon. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, fell 0.85% late in the session to stand at $43.34.
The trader appears to have initially accumulated a 30,000-lot debit call spread at an average net cost of $1.00 per contract between September 3 and 9 when shares of the fund were trading within a range of $38.46 to $39.12. Shares of the ETF have rallied substantially since the spread was initiated. But, perhaps the unraveling of the bullish play is a sign the investor is taking available profits of the table because he believes the rally has run out of steam.
The investor sold the 30,000-lot spread at the December $41/$45 strikes today to receive a net premium of $2.285 per contract. Thus, the investor pockets average net profits of $1.285 per contract by taking the trade off at this time. Options implied volatility on the retail fund is currently up 7.4% at 26.08% with 20 minutes remaining in the trading day.
GRMN ñ Garmin, Ltd.
Bullish traders picked up call options on the manufacturer of consumer electronics right out of the gate this morning. Shares of the maker portable and fixed-mount GPS-enabled navigation products surged 4.6% in the first half of the trading session to secure an intraday high of $32.85, and likely attracted investors to purchase near-term call options on the stock. However, Garminís earlier run up in shares disappeared by 1:30 p.m. in New York, and the stock is currently down 0.30% to arrive at $31.34.
Options traders exchanged more than 5,200 calls at the October $32 strike, and traded upwards of 1,940 calls at the higher October $33 strike. It looks like the majority of those calls were purchased, with approximately 2,900 lots picked up at the October $32 strike for an average premium of $0.32 apiece. Call buyers holding the October $32 strike contracts make money if Garminís shares rally above the average breakeven price of $32.32 by expiration tomorrow.
Bulls scooped up roughly 1,100 of the calls traded at the October $33 strike for an average premium of $0.19 apiece. These calls expire worthless tomorrow unless shares exceed $33.00. Investors long the higher-strike calls are prepared to profit should GRMNís shares surge 5.90% over the current price of $31.34 to surpass the average breakeven point at $33.19 by October expiration. Garminís overall reading of options implied volatility is up sharply by 21.2% to arrive at 49.17% as of 1:55 p.m.
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About Andrew Wilkinson
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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