IB Options Brief: Endo Pharmaceuticals Holdings, Inc. (ENDP) & Cablevision Systems Corp. (CVC)
ENDP ñ Endo Pharmaceuticals Holdings, Inc.
Call activity on the maker of branded and generic prescription drugs this morning suggests one strategist expects shares in Endo Pharmaceuticals are unlikely to rally much ahead of April expiration. ENDPís shares are currently down 1.75% to stand at $33.85 as of 11:20am in New York. The pessimistic player appears to have sold a call spread, taking in and keeping the credit on the transaction as long as shares in Endo fail to break above $35.00 through expiration day next month.
It looks like the investor sold 2,000 calls at the April $35 strike for a premium of $1.33 each, and purchased the same number of calls at the higher April $40 strike at a premium of $0.33 apiece. The investor pockets a net credit of $1.00 per contract on the spread, and retains the full amount of premium as long as the April $35 strike calls expire worthless at expiration.
The bearish play limits losses to the upside with the purchase of the higher-strike call options, but the investor will start to lose money if the price of the underlying exceeds the effective breakeven price of $36.00 ahead of expiration. The credit spread could result in maximum potential losses of $4.00 per contract in the event that ENDPís shares surge 18.2% to trade above $40.00 by expiration in April.
CVC ñ Cablevision Systems Corp.
Investors initiated bearish positions in Cablevision options this morning with shares in the U.S. cable operator trading 0.95% lower on the session to arrive at $34.58 just before 11:40am. Traders appear to be replicating strategies employed on CVC in the front month during trading on Tuesday.
More than 2,850 calls at the March $35 strike sold for an average premium of $0.23 per contract today. Open interest patterns at that strike suggest investors received $0.32 premium on the sale of some 2,500 of the calls yesterday. Call sellers keep the premium pocketed on the trade as long as shares in Cablevision trade below $35.00 through expiration at the end of the week.
If the calls sold at that strike this morning and on Tuesday are uncovered, investors amass losses in the event that shares in CVC reverse course to surpass the breakeven prices of $35.23 and $35.32, respectively.
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