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