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Option Clips: King Digital, Electronic Arts, and First Solar

Reviewing notable options activity on King Digital Entertainment PLC, Electronic Arts Inc., and First Solar, Inc.

by 5/8/2014 2:01 PM
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Two equities generating buzz on StockTwits today are "Candy Crush" maker King Digital Entertainment PLC (NYSE:KING) and videogame issue Electronic Arts Inc. (NASDAQ:EA). Meanwhile, alternative energy provider First Solar, Inc. (NASDAQ:FSLR) is also popular in the options pits. Here's a look at how traders have been aligning their speculative bets today.

  • King Digital Entertainment PLC (NYSE:KING) is up 3.8% to $16.87, paring yesterday's post-earnings plunge to all-time lows. Bolstering the Big Board freshman was a pre-market price-target boost to $24 from $23 at Barclays, representing expected upside of nearly 50% to KING's current price. The stock remains on the short-sale restricted list, prompting one speculator to simulate a short position using options. Intraday options volume is running at five times the norm, and it looks like the aforementioned trader established a split-strike version of the synthetic short stock strategy by buying to open May 17 puts and selling to open May 20 calls, resulting in a net debit of $0.77 per pair of contracts. The goal is for KING to finish beneath breakeven at $16.23 (put strike minus net debit) at the close on Friday, May 16, when front-month options expire. The sold calls reduce the trader's risk to the net debit, should KING settle between the strikes at expiration.

  • Electronic Arts Inc. (NASDAQ:EA) has extended its quest for multi-year highs after earnings -- peaking at $34.87 earlier today, after Jefferies raised its price target on EA to $31 from $25. The stock was last seen 0.8% higher at $34.23, yet puts are the options of choice today, with 10,000 contracts traded -- five times the norm. Digging deeper, it looks like one speculator may have bought to open several thousand EA shares, and then "insured" part of his stake by purchasing to open 1,800 January 2015 33-strike puts. The trader's primary goal is for EA to continue its upward momentum, but the puts lock in an acceptable price at which to sell his stake ($33 per share), should EA take a turn for the worse before the LEAPS expire. Now is an opportune time for premium buyers -- the short-term variety, at least -- to gamble on EA. The security's 30-day at-the-money (ATM) implied volatility (IV) fell to a 52-week low earlier in the session, and was last seen 4.2% lower at 26.7%.

  • Finally, First Solar, Inc. (NASDAQ:FSLR) backpedaled on Wednesday, despite reporting stronger-than-expected quarterly earnings and upping its full-year guidance. The stock has bounced back 2.1% to $64.90, at last check, and overall options volume is running at double the average rate. The stock's 30-day ATM IV is 1.6% higher at 47.2%, reflecting a growing affinity for short-term contracts, and the June 70 call is most active with nearly 5,600 contracts exchanged. Almost all of the calls traded on the ask side, IV is trending higher, and volume has topped open interest at the strike -- all signs of newly bought bullish bets. By purchasing the calls to open, the buyers expect FSLR to muscle north of $70 by the close on Friday, June 20, when back-month options expire.


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