IB Options Brief: MetroPCS Communications, Inc. (PCS) & Sotheby's Holdings Inc. (BID)

Posted October 31st, 2011 by Caitlin Duffy in Unusual Activity

Call Volume Picks Up Ahead Of MetroPCS Earnings Report

PCS ñ MetroPCS Communications, Inc.
Shares in the wireless provider are down 4.25% at $8.56 ahead of the companyís pre-market third-quarter earnings release on Tuesday. Options players populating the front month calls and puts appear to be taking largely bullish stances on the stock. Investors positioning for shares to move higher in the next few weeks picked up more than 2,600 in-the-money calls at the Nov. $8.0 strike for an average premium of $1.05 a-pop. Call buyers at this strike profit at expiration in the event that shares in MetroPCS rally 5.7% to surpass the average breakeven point at $9.05. Options players also snapped up more than 300 call options at each of the higher Nov. $9.0 and $10 strike prices at average premiums of $0.49 and $0.19 each, respectively. Finally, the sale of some 1,100 puts at the Nov. $8.0 strike for an average premium of $0.40 per contract may mean traders see shares in the name trading above $8.00 come expiration day next month. Put open interest at the Nov. $8.0 strike is sufficient to cover volume in play thus far in the session. As such, traders may be adjusting existing positions rather than selling-to-open bullish stances on PCS. Options implied volatility on the stock is up 15.9% at 77.25% in early-afternoon trade. Nearly 9,000 option contracts have changed hands on MetroPCS so far today, with trading in calls outpacing that of puts by a factor of roughly two-to-one.

BID ñ Sothebyís Holdings Inc.
The auctioneer of authenticated fine art, antiques, jewelry and collectibles popped up on our ëhot by options volumeí market scanner this morning after one strategist initiated a sizable ratio put spread in the January 2012 contract. BIDís shares are currently down 3.2% at $36.26 as of 11:50 am in New York. The put player responsible for just about all of the activity in Sothebyís options today may be bracing for limited bearish movement in the price of the underlying heading into the companyís third-quarter earnings report after the close on Thursday. The investor appears to have purchased 2,000 puts at the Jan. 2012 $35 strike for an average premium of $3.325 each, and sold 4,000 puts at the lower Jan. 2012 $30 strike at a premium of $1.50 apiece. Net premium paid to initiate the spread amounts to $0.325 per contract. The strategist profits if BIDís shares slide 4.4% from the current price to breach the effective breakeven point on the downside at $34.675 at expiration. Maximum potential profits of $4.675 per contract are available to the investor in the event that shares in the auctioneer plunge 17.3% to settle at $30.00 at expiration day in January. Shares in Sothebyís Holdings Inc. fell to as low as $25.00 as recently as October 4. The parameters of the ratio spread point to complete erasure of gains, which may give way to losses on the downside, should the stock trade beneath a lower breakeven price of $25.325 at expiration.

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