IB Options Brief: Medifast, Inc. (MED) & Advanced Micro Devices (AMD)

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Contrarians Position For Medifast To Trim Losses

MED ñ Medifast, Inc.
Shares in the maker of weight management products shed 12.0% this morning to touch down at an intra-session low of $22.19 following disappointing earnings from competitor NutriSystem, Inc. NTRIís shares dropped 31.2% today to a fresh 52-week low of $13.90 post-earnings. Medifastís earnings are just around the corner, with the report scheduled for release ahead of the opening bell on March 3, 2011. Despite the gloomy forecast out of NutriSystem, it looks like one investor is positioning for a more positive outcome from Medifast.

The contrarian player appears to have purchased a debit call spread, buying 1,000 calls at the April $23 strike for an average premium of $2.19 each, and selling the same number of calls at an average premium of $0.99 apiece. The net cost of the bullish play amounts to $1.20 per contract and positions the trader to make money should MEDís shares bounce back up by around 9.0% to surpass the average breakeven point at $23.20 ahead of April expiration.

Maximum potential profits of $1.80 per contract are available to the call-spreader if shares in Medifast rally 17.2% off todayís low of $22.19 to trade above $26.00 before the calls expire in April. The rise in demand for MED options helped lift options implied volatility on the stock 12.0% to 80.16% in early afternoon trade.

 

AMD ñ Advanced Micro Devices
A sizeable stock and options combination play on Advanced Micro Devices caught our eye this morning. It looks like one strategist initiated a delta neutral position on AMD in the July contract. Shares in the name are up 3.3% to arrive at $9.40 as of 12:50pm. The investor appears to have sold 319,000 shares of the underlying at a price of $9.34 each, and purchased 7,250 calls at the July $10 strike for a premium of $0.81 each, on a 0.44 delta.

The trader benefits from the short stock leg of the transaction if shares decline, but makes out on the long calls if shares continue their upward trajectory in the next five months to expiration. The global semiconductor company reports earnings for the first quarter after the market closes on April 14, 2011. Elsewhere in AMD options, investors are displaying a marked preference for calls over puts. Options players are trading more than 3 calls on AMD for each single put option in action as of 1:00pm in New York.

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