IB Options Brief: Barnes & Noble, Inc. (BKS) & Time Warner Cable, Inc. (TWC)

Posted December 1st, 2011 by Caitlin Duffy in Unusual Activity

BKS ñ Barnes & Noble, Inc.
Shares in the click-and-mortar book seller and maker of the NOOK reader were slammed today, dropping as much as 23.9% to $13.27, after the company posted a second-quarter loss of $0.17 a share ahead of the opening bell this morning. Analysts on average had been expecting Barnes & Noble to earn $0.03 a share in the quarter.

The sharp post-earnings report move in the price of the underlying spurred heavier-than-usual trading traffic in BKS options, with nearly 25,000 contracts having changed hands on the stock by 12:45 PM in New York. Call options are far more active than puts at present, and it looks like some strategists may be positioning for shares to improve in the New Year. The stock was raised to ëbuyí from ëholdí with a 12-month share price target of $25.00 at Stifel Nicolaus today.

One trader appears to have purchased 4,935 call options at the Jan. 2012 $15 strike for a premium of $1.70 each. The investor may profit at expiration in January in the event that shares in Barnes & Noble rally 12.6% over the currently price of $14.83 to surpass the effective breakeven point on the upside at $16.70. Calls at the Jan. 2012 $16 and $20 strikes were also heavily traded in the first half of the session, though not all strategists were buyers.

Traders with a bearish outlook on the book seller snapped up 2,200 puts at the Jan. 2012 $12.5 strike for an average premium of $1.00 each. Put buyers stand prepared to profit if BKS shares plunge 22.5% to breach the breakeven price of $11.50 at expiration seven weeks from now.

TWC ñ Time Warner Cable, Inc.
Put activity in the front month on Time Warner Cable suggests one investor is positioning for shares in the cable operator to top $60.00 at expiration in a few weeks. The stock presently trades 0.50% higher on the session at $60.80 as of 1:05 PM in New York.

It appears the trader responsible for just about all of the activity in TWC options today sold a 2,000-lot Dec. $55/$60 put spread to pocket a net credit of $0.83 per contract. The investor keeps the $0.83 net credit and maximum potential profit on the position as long as shares in Time Warner exceed $60.00 and the put options expire worthless later this month.

Risk of loss in this strategy far outweighs potential reward in the event that TWC shares pull back. Specifically, the investor starts to lose money on the position if shares fall 2.7% to breach the effective breakeven point on the spread at $59.17. The trader may realize maximum possible losses of $4.17 per contract should the price of the underlying plunge 9.5% in the next few weeks to trade below $55.00.

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