IB Options Brief: Corning, Inc,. (GLW) & Expedia, Inc. (EXPE)
Put player portends pullback in Corning shares
GLW ñ Corning Inc.
A massive put spread purchased on the glass maker this afternoon appears to be the work of an investor positioning for the price of the underlying stock to decline ahead of August 2011 expiration. Corningís shares increased 0.55% this afternoon to arrive at $22.28 by 1:40pm in New York. The price of the underlying stock has climbed more than 51.6% since August 27, 2010, to touch a 52-week high of $23.43 just last Friday.
The large bearish stance employed in Corning put options today is perhaps a sign that at least one player believes the next six months may not be as fruitful for GLW investors as the last six. The trader purchased 28,000 puts at the August $22 strike for a premium of $1.83 each, and sold the same number of puts at the lower August $18 strike at a premium of $0.56 apiece. Net premium required to buy the spread amounts to $1.27 per contract, thus positioning the investor to profit should Corningís shares drop 7.0% from the current price of $22.28 to breach the effective breakeven point on the downside at $20.37 by August expiration day.
Maximum potential profits of $2.73 pad the put playerís wallet in the event that shares in GLW plummet 19.2% to trade below $18.00 before the contracts expire in August. Corningís shares last traded below $18.00 back on December 1, 2010.
EXPE ñ Expedia, Inc.
Contrarian options traders are initiating bullish plays on the online travel company this morning in the face of a more than 18.25% decline in Expediaís shares to an intraday low of $20.99. Bullish strategists established near- and long-term positions that suggest the firmís earnings miss has been priced in to its shares.
Some traders are betting the stock is unlikely to fall much further, while others are initiating outright bullish bets that Expediaís shares will recover somewhat in the next few months. Shares in EXPE dropped after the company posted fourth-quarter profits of $0.32 a share, missing the average forecast of $0.36 a share, following the close of trading on Thursday. Investors exchanged more than 23,450 put options at the March $20 strike in the first half of the session on zero lots of open interest. It looks like the majority of the puts were sold for an average premium of $0.33 apiece.
Put sellers keep the full premium on the transaction as long as Expediaís shares exceed $20.00 through March expiration. Meanwhile, trading in longer-dated call and put options paints a more bullish picture for Expedia in the coming months. One player established a three-legged transaction, selling 2,000 puts at the April $19 strike for a premium of $0.40 each, buying the same number of calls up at the April $22 strike at a premium of $0.90 per contract, and selling 2,000 calls at the higher April $24 strike for a premium of $0.30 apiece. Net premium paid to initiate the transaction amounts to $0.20 per contract. The investor responsible for the spread stands prepared to make money in the event that EXPEís shares rally 5.8% off todayís low of $20.99 to surpass the average breakeven point to the upside at $22.20 by April expiration.
Maximum potential profits of $1.80 per contract are available to the trader should shares surge 14.3% to exceed $24.00 before the options expire in April. Options implied volatility on Expedia is lower by 14.2% to stand at 33.53% as of 12:30pm in New York.
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 from theuse of this information. Past performance is not necessarily indicativeof 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 material arenot suitable for all investors. Any opinions expressed herein are givenin 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 into accountyour particular investment objectives, financial situations or needsand 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 particular circumstancesand, as necessary, seek professional advice.
View Andrew Wilkinson's post archive >