IB Options Brief: Children's Place Retail Stores, Inc. (PLCE) & Coca-Cola Co. (KO)

Posted November 17th, 2011 by Caitlin Duffy in Unusual Activity

PLCE ñ Childrenís Place Retail Stores, Inc.
Shares in the specialty retailer of childrenís apparel and accessories are up big today, rallying as much as 17.1% to an intraday high of $52.70, after the company posted better-than-expected third-quarter earnings of $1.33 a share and increased its 2012 earnings forecast. The stock was raised to ëBuyí from ëNeutralí with a 12-month target share price of $62.00 at Janney Montgomery. Call open interest in the front month suggests some strategists were busy-bees last week preparing for shares in the youth-apparel maker to rally sharply by November expiration. As an example, the majority of the 1,988 open call positions at the Nov. $50 strike appear to have been established by buyers last week for an average premium of $0.38 per contract. These same contracts, which grant buyers the right to purchase shares for $50.00 each, currently cost more than seven times as much at $2.75 per contract in early-afternoon trade. Investors today engaged in mixed trading at the Nov. $50 strike, buying and selling a total of 1,600 in-the-money call options. Bulls also targeted the Nov. $45 strike call ahead of earnings, buying roughly 540 of the contracts for an average premium of $3.50 each back on October 31. These deep in-the-money call options presently cost $7.40 a-pop to buy.

KO ñ Coca-Cola Co.
A long-dated short straddle with a shelf life of more than one year may result in handsome profits to its owner as long as the carbonated beverage makerís shares are roughly flat at expiration. Cokeís shares are flat today at $67.01 in early-afternoon trade. It looks like one investor sold a 4,800-lot Jan. 2013 $67.5 strike straddle to pocket premium of $11.60 per contract. The trader keeps the full amount of premium received on the transaction as long as shares in Coca-Cola Co. settle at $67.50 at expiration day in 2013. Substantial premium pocketed on the play protects the investor from limited bullish or bearish moves in KOís shares about the specified strike price through expiration. However, the trader may start to lose money on the position in the event that Cokeís shares rally 18.0% to surpass the upper breakeven point at $79.10, or should the stock plunge 16.6% to breach the lower breakeven price of $55.90, at expiration.

-----------------------------------------------------------------------------------

Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained from theuse of this information. Past performance is not necessarily indicativeof future results.

This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this material arenot suitable for all investors. Any opinions expressed herein are givenin good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take into accountyour particular investment objectives, financial situations or needsand is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particular circumstancesand, as necessary, seek professional advice.