IB Options Brief: Hertz Global Holdings, Inc. (HTZ) & Goodyear Tire & Rubber Co. (GT)
HTZ ñ Hertz Global Holdings, Inc.
The car and truck rental company raised its bid for Dollar Thrifty Automotive Group Inc. to $2.24 billion in cash and stock, besting an offer by Avis Budget Group Inc. Shares in Hertz Global Holdings, the largest publicly-traded rental-car company, slipped 1.2% in early-afternoon trade to stand at $16.48 as of 12:30pm. One options player expecting the price of the underlying stock to rally over the next several months took advantage of the dip in HTZ shares by initiating a bull call spread in the September contract.
The trader purchased 2,500 in-the-money calls at the September $16 strike for an average premium of $1.775 apiece, and sold the same number of calls at the higher September $19 strike at a premium of $0.50 each. The investor paid an average net premium of $1.275 per contract on the spread. Thus, the position becomes profitable if shares in HTZ rally 4.8% over the current price of $16.48 to exceed the average breakeven point at $17.275 by September expiration. Maximum potential profits of $1.725 per contract are available to the bullish investor if shares in Hertz surge 15.3% to trade above $19.00 by expiration day.
The selection of in-the-money calls at the lower-strike suggests this trader would like to be long the stock come expiration. The investor expects shares in HTZ to at least be trading above $16.00, and may be hoping to see the September $19 strike calls expire worthless in September. In this scenario, the call-spreader is long the stock and free to enjoy any upside movement in the rental-car companyís stock price in the absence of the $19.00 ceiling. Shares in HTZ hit a new 52-week high of $17.64 on Monday, and have not traded above $19.00 since November 2007.
GT ñ Goodyear Tire & Rubber Co.
Activity in Goodyear Tire & Rubber Co. call options today indicates some traders believe the rally in the price of the underlying stock has not yet reached its full potential. Shares in the tire manufacturer increased as much as 2.6% during the session to touch an intraday- and new 52-week high of $18.71.
Investors positioning for the uptrend to continue in the near term purchased around 3,750 calls at the May $19 strike for an average premium of $0.33 each. More than 5,920 calls changed hands at that strike on open interest of 2,675 contracts. Call buyers make money if shares in GT rally another 3.3% over todayís new 52-week high of $18.71 to surpass the average breakeven price of $19.33 by May expiration.
Bullish sentiment on Goodyear spread to the June $20 strike where at least 3,000 calls were picked up for an average premium of $0.44 a-pop. Investors long the calls stand prepared to profit in the event that GTís shares surge 9.25% to exceed the average breakeven point on the upside at $20.44 at expiration next month.
More than 1,100 calls changed hands at the higher June $21 strike today against previously existing open interest of just 72 contracts. It looks like the majority of the calls were snapped up by bullish players for an average premium of $0.25 each. Traders holding these contracts start making money if shares in the tire maker jump 13.6% in the next six weeks to trade above the average breakeven price of $21.25 by June expiration day. Call options on the stock are the clear favorite during the first half of the trading day, with investors exchanging around 4.3 calls on Goodyear for each single put option in play.
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