IB Options Brief: Dell, Inc. (DELL) & ConAgra Foods, Inc. (CAG)

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Dell Options In Demand

DELL ñ Dell, Inc.
Strategists populating Dell options today are sending mixed signals on the PC maker ahead of the companyís first-quarter earnings report on May 17. Call buyers in the June contract appear to be gearing up for a rally in the price of the underlying shares, while ratio put spreaders are taking a more cautious stance on the stock. Shares in Dell are currently up 0.25% to stand at $15.84 as of 12:15pm.

Options traders exchanged more than 9,800 calls at the June $16 strike on open interest of 3,774 contracts. It looks like nearly all of the contracts were purchased for an average premium of $0.63 a-pop. Investors long the calls profit if DELLís shares rally 5.0% over the current price of $15.84 to exceed the average breakeven price of $16.63 by expiration day next month.

Meanwhile, one or more put players initiated ratio spreads. Approximately 3,500 in-the-money puts at the June $16 strike were purchased for an average premium of $0.81 each, while 7,000 puts at the lower June $15 strike sold for an average premium of $0.37 apiece. Investors employing the spreads paid a net premium of $0.07 per contract, on average.

The sale of twice as many of the lower-strike put options substantially reduced the cost of positioning for a pullback in Dellís shares through expiration day next month. Traders may be using the put-play to hedge a long position in the stock, or may be positioning for shares to decline rather than rally as call buyersí actions suggest.

The parameters of the put spread, for outright bearish players, indicate maximum potential profits of $0.93 per contract if shares in DELL settle at $15.00 at expiration. But, if the position turns out to be not quite bearish enough, investors start losing money beneath a breakeven share price of $14.07.

 

CAG ñ ConAgra Foods, Inc.
The branded food company with well-known names such as Chef Boyardee and Hebrew National in its portfolio attracted bullish players to its options this morning. Shares in ConAgra rallied as much as 4.3% earlier in the session to secure an intraday- and new 52-week high of $25.82 on news the company raised its bid for Post cereals and generic food products producer Ralcorp, to $4.9 billion, or $86.00 a share, up from $82.00 a share in March.

Investors expecting the price of ConAgraís shares to extend gains in the near term picked up around 2,600 now in-the-money calls at the May $25 strike for an average premium of $0.57 each. Call buyers at this strike profit if shares in CAG exceed the average breakeven price of $25.57 at expiration in a couple of weeks.

Bullish sentiment spread to the higher May $26 strike where some 800 call options were purchased at an average premium of $0.30 a-pop. More than 900 calls changed hands at this strike on zero open positions. Investors long the May $26 strike calls make money if shares in ConAgra rally another 1.85% over todayís high of $25.82 to surpass the average breakeven price of $26.30 by expiration day. Similar buying behavior was seen out at the June $26 strike where investors paid an average premium of $0.35 per contract to get long roughly 1,300 call options.

In-the-money call selling at the June $25 strike may be the work of traders taking profits off the table. Open interest patterns at that strike suggest the majority of the positions were initiated by investors buying calls on April 15 for an average premium of $0.38 per contract. Today traders sold 2,300 of the June $25 strike calls for an average premium of $0.95 each. Alternatively, investors selling the calls may be opening rather than closing positions to position for the price of the underlying to pull back ahead of June expiration. Options implied volatility on the stock shot up 23.6% to 18.87% by 11:45am in New York.
 

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