IB Options Brief: Tempur-Pedic Interational, Inc. (TPX) & Sherwin-Williams Co. (SHW)

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Tempur-Pedic options pop as shares hit new all-time high     



TPX ñ Tempur-Pedic International, Inc.
The maker of premium mattresses and pillows popped up on our scanners at the start of the trading session with options activity thatís anything but sleepy. Shares in Tempur-Pedic International jumped 17.6% this morning to secure an intraday- and new all-time high of $59.98 after the company raised its full-year guidance and said it expects to report strong first-quarter results in its announcement after the close on April 20, 2010.

The company is expecting to earn $2.80 to $2.95 a share on sales of $1.31 to $1.36 billion for the full year, which is far greater than the average analyst estimate of $2.72 a share on revenue of $1.26 billion. Fresh bullish positions were initiated at the April $60 strike, where more than 2,200 calls changed hands on previously existing open interest of just 8 contracts. It looks like the majority of these calls were purchased for an average premium of $0.50 a-pop, which positions buyers of the contracts to profit above an average breakeven price of $60.50 through expiration next Friday.

Investors picked up another 255 calls at the higher April $65 strike for an average premium of $0.10 each. Open interest patterns in the front month suggest some options traders established bullish stances on Tempur-Pedic well in advance of todayís sharp rally in shares. It looks like traders picked up around 630 calls at the April $50 strike for an average premium of $1.64 each back on March 16, 2011. These now deep-in-the-money calls tout an asking price of $9.00 each as of 11:30am in New York. Just one week ago, on April 1, open interest in calls at the April $55 strike suggests some 1,400 call options were purchased for an average premium of $0.15 each.

Investors looking to buy those same calls today face an asking price of $4.00 per contract. Analysts at Piper Jaffray reportedly raised their share price target on TPX to $68 from $51 and maintained an ëOverweightí rating on the luxury mattress-maker, while analysts at Wedbush upped their price target on the stock to $63 from $49 with an ëOutperformí rating.


 
SHW ñ Sherwin-Williams Co.
Medium-term options activity on Sherwin-Williams Co. this afternoon paints a bearish picture for the Cleveland, OH-based companyís shares through June expiration. Some investors populating June contract put options may be positioning for the paint and paint products providerís shares to fall, or are perhaps enlisting downside protection ahead of SHWís first-quarter earnings report ahead of the opening bell on April 21.

Shares in Sherwin-Williams are currently up 0.25% to arrive at $85.51 as of 12:30pm in New York. The stock popped up on our ëhot by options volumeí market scanner after some 3,000 puts traded at the June $80 strike, on previously existing open interest of just 484 contracts. It looks like most of the put options were purchased for an average premium of $1.50 apiece. Put buyers make money, or realize downside protection, in the event that SHWís shares drop 8.2% from the current price of $85.51 to breach the effective breakeven point to the downside at $78.50 at expiration.

Shares in Sherwin-Williams are hovering just below their 52-week high. Deep out of-the-money put purchasers may be securing pre-earnings announcement downside insurance, and/or hedging any unforeseen shocks that could send the stock lower in the months ahead. Alternatively, put buyers could be outright bearish on the stock, willing to shell out $1.50 per contract because they expect to benefit from a sharp pullback in the price of the underlying ahead of June expiration.




 

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