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M&A Rumors Draw DreamWorks Animation SKG, Inc. (DWA) Option Traders

DreamWorks Animation SKG, Inc. option traders are active amid buyout buzz

by 9/29/2014 11:15 AM
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Short-term options traders are blitzing DreamWorks Animation SKG, Inc. (NASDAQ:DWA) this morning, reacting to rumors of a potential buyout bid from SoftBank Corp. At last check, the equity's 30-day at-the-money implied volatility has skyrocketed 45% to 47.3%, underscoring the soaring demand for short-term contracts.

Overall options volume is running at 24 times the average intraday pace, with roughly 3,500 calls and 2,800 puts exchanged. In early action, DWA has jumped 17.3% to $26.22, and it appears option bulls are gambling on more upside by buying to open the October 27 call -- the most active contract thus far. Bears, meanwhile, are buying to open the October 25 put, looking to cash in on a DWA retreat beneath $25 within the next three weeks.

In light of DWA's advance, delta on the call has jumped to 0.39 from 0.093, implying a roughly 39% chance of expiring in the money at the close on Friday, Oct. 17. Delta on the puts, meanwhile, has dropped to negative 0.22 from negative 0.77 at Friday's close, suggesting a less than 1-in-4 shot of an in-the-money finish. No matter what happens, the buyers' risk is limited to the initial premium paid for the contracts.

On the charts, DreamWorks Animation SKG, Inc. (NASDAQ:DWA) is attempting to fill its bear gap from mid-June, before which the stock was trading north of $27. A mass exodus of shorts could provide added fuel to the equity's fire, should today's rumors come to fruition. Short interest accounts for nearly 19% of DWA's total available float, representing more than 11 sessions' worth of pent-up buying demand, at the stock's average daily trading levels.


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Pre-Earnings Bulls Charge Ariad Pharmaceuticals, Inc. (ARIA)

Ariad Pharmaceuticals, Inc. is tentatively scheduled to report earnings in mid-November

by 9/29/2014 10:40 AM
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Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) is bucking the broad-market trend lower today, up 2.3% to $5.82 on a positive update for its anti-tumor drug, AP26113. However, today's uptick pales in comparison to last Friday's 5.6% advance, which prompted a rush of call traders.

Diving right in, ARIA's most active strike was the out-of-the-money November 6 call, where 1,650 contracts changed hands. Almost all of them crossed at the ask price, and open interest surged over the weekend, indicating the calls were bought to open.

Most likely, the buyers expect ARIA to continue its recent rally, and finish atop $6 at the close on Friday, Nov. 21, when the back-month options expire. However, nearly 33% of the equity's float is sold short, so it's possible the calls were initiated by short sellers attempting to hedge their bearish bets against additional gains.

Looking ahead, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) is tentatively scheduled to step into the earnings confessional during the second week of November -- ahead of the aforementioned option's expiration date. Over the past eight quarters, the company has matched or bested the Street's consensus per-share earnings estimate six times, but has shed an average of 2.2% in the subsequent session.


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Michael Kors Holdings Ltd (KORS) Call Buyers Eye $80 Level

November-dated calls were active on Michael Kors Holdings Ltd last Friday

by 9/29/2014 10:36 AM
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Call players took aim at Michael Kors Holdings Ltd (NYSE:KORS) on Friday, as option volume on the apparel company ramped up to more than double the daily norm. During the course of the session, about 11,000 calls and 12,000 puts changed hands, with the November 80 call emerging as the day's most popular KORS strike.

Specifically, a total of 1,553 contracts traded at the November 80 call, and 867 of those translated into new open interest over the weekend. Since most of these calls crossed the tape near the ask price, and implied volatility on the option rose on the day, it's safe to assume that options players were buying to open new calls on KORS last Friday.

On the charts, KORS is up 0.2% today to trade at $71.61 -- but the shares earlier tagged a new 52-week low of $70.44. In other words, those November 80 calls are out of the money by a fairly substantial margin right now.

The stock has dropped 29% from February's record high of $101.04, but Friday's skew toward calls was simply more of the same for KORS. During the past 50 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.72 calls for every put on the equity. This ratio ranks higher than 92% of other such readings taken over the past year, which means traders have rarely picked up calls over puts at a faster pace.

That said, there could be an ulterior motive behind all the call buying on Michael Kors Holdings Ltd (NYSE:KORS). Short interest has been on the rise for months, up roughly 60% since mid-May. As a result, it's possible that bears are buying calls to hedge their shorted shares, rather than to bet on a rally for KORS. And with the company tentatively slated to report earnings during the first week of November, that could certainly be the impetus behind Friday's deep out-of-the-money back-month call trades.

KORS short interest since Sept 2013

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Options Check-Up: Lululemon Athletica, Toll Brothers, Wynn Resorts

Analyzing recent option activity on LULU, TOL, and WYNN

by 9/29/2014 8:02 AM
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Among the stocks attracting attention from options traders lately are yoga apparel maker Lululemon Athletica inc. (NASDAQ:LULU), housing concern Toll Brothers Inc (NYSE:TOL), and casino name Wynn Resorts, Limited (NASDAQ:WYNN). Below, we'll break down how option buyers are positioning themselves, and how much speculators are willing to pay for their bets on LULU, TOL, and WYNN.

  • LULU was up 1.8% on Friday, ending at $42.99. LULU has been strong on the charts recently, outperforming the S&P 500 Index (SPX) by almost 8 percentage points in the past two months -- even though the equity is still sitting on a steep year-to-date decline of 27%. Lululemon Athletica inc.'s 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.38 sits in the 75th percentile of its annual range, implying that calls have been bought to open over puts at a faster-than-normal rate in the last two weeks. However, with almost 24% of LULU's available float sold short, the acceleration in call buying could be a result of short sellers hedging their positions.With LULU's Schaeffer's Volatility Index (SVI) of 31% hovering not far from annual-low levels, its short-term options are on the inexpensive side, from a volatility standpoint.

  • TOL ended at $31.83 on Friday, a gain of 0.2%. On the year, the shares have lost 14%. Still, sentiment in the options pits is bullish, with the stock's 50-day ISE/CBOE/PHLX call/put volume ratio of 6.25 standing in the 85th percentile of its annual range, showing a stronger-than-usual appetite for calls over puts lately. On a volatility basis, Toll Brothers Inc's short-term options are inexpensive, with its SVI of 23% arriving in the 19th percentile of its annual range.

  • WYNN notched a gain of 1.4% on Friday, finishing at $184.50. The stock recently bounced from support at the $180 level and its 20-month moving average, suggesting its two-year-long uptrend remains firmly intact. Options traders remain bullish on Wynn Resorts Limited, as its 10-day ISE/CBOE/PHLX call/put volume ratio of 1.22 resides in the 76th percentile of its annual range. The equity's short-term options can be had at bargain price, as WYNN's SVI of 27% stands in the 16th percentile of its annual range.


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Bearish Betting Rises as Sears Holdings Corp (SHLD) Falls

Sears Holdings Corp traders are buying to open short-term puts

by 9/26/2014 3:13 PM
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Sears Holdings Corp (NASDAQ:SHLD) is getting hammered today, down 4.3% to trade at $24.57, following news that Sears Canada -- of which SHLD is the majority stakeholder -- may be on the verge of bankruptcy amid its CEO's planned exit. The sell-off is being met with increased options activity, as nearly 24,000 total contracts are on the tape so far -- double the expected intraday amount.

At last check, SHLD's 30-day at-the-money implied volatility is 14.6% higher at 86%, indicating strong demand for short-term strikes. Accordingly, among the equity's most sought-after options are the October 21 and 23 puts, where a collective 2,936 contracts have been exchanged. It appears these are mostly being bought to open, as speculators roll the dice on additional downside for SHLD during the next month.

Longer term, things haven't been pretty for Sears Holdings Corp (NASDAQ:SHLD). Technically, the stock is sitting on a year-over-year deficit of nearly 49%. However, the shares haven't traded below $23 since January 2012, and they haven't breached $21 since November 2008.


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