Your intraday options trading update.
Sprint Nextel Corp. (NYSE: S) — Medium-term bullish positioning is building up in Sprint options today with shares in the name trading 3% higher on the session at $4.84 as of 12:20 pm in New York. Investors expecting shares in the provider of various communications products and services to extend gains through May expiration engaged in plain-vanilla call buying, purchasing the options out-right to position for shares to potentially reach a new 52-week high in the next couple of months. Volume is heaviest at the S May 6.0 Call where 20,750 contracts have changed hands versus previously existing open interest of 7,482 contracts. It looks like roughly 18,000 of the calls were picked up at a premium of 8 cents each. Call buyers make money if Sprint’s shares jump 25.6% over the current price of $4.84 to surpass the effective breakeven price of $6.08 by expiration day in May. Sprint is scheduled to report first-quarter earnings before the market opens on April 28.
Frontier Communications Corp. (NYSE: FTR) — Put volume on the communications company jumped today after sizable trades were initiated in the May contract. It looks like investors responsible may be purchasing the contracts to brace for bearish movement in the price of the underlying stock. Shares in FTR are currently down .9% to stand at $8.00 as of 12:30 pm. The selection of the May contract put options could be coincident with the firm’s first-quarter earnings report, which is scheduled for release before the opening bell on May 5. One trader appears to have purchased some 3,000 FTR May 8 Puts for a premium of 40 cents each. The investor starts to make money on the put-acquisition if shares in FTR decline 5% from the current price of $8.00 to breach the effective breakeven point at $7.60 by May expiration day. Volume is greatest, however, at the lower FTR May 7.0 Put where 15,000 options traded for a premium of 10 cents each. The contracts traded to the middle of the bid/ask spread available at the time of the transaction. If the investor is buying the large chunk of puts, pessimism reigns supreme in Frontier Communications Corp. options today. But the seller of the options keeps the premium as long as the price of the underlying stock exceeds $7.00 through expiration day, while a buyer of the contracts starts to make money if shares in FTR drop below $6.90 in the next couple of months. The sharp rise in demand for put options on FTR helped lift the overall reading of options implied volatility on the stock 11.7% to 24.49 in early-afternoon trade.
Jackson Hewitt Tax Service, Inc. (NYSE: JTX) — Shares in the provider of tax return preparation services plunged 43.2% to an all-time low of $0.71 after reporting third-quarter earnings of $0.19 a share, which was far lower than the $0.31 per share analysts had been anticipating. The firm said it is working with its lenders on a restructuring plan that could include a pre-packaged bankruptcy, according to Reuters. Not surprisingly, the second-largest tax preparer in the U.S. popped up on our scanners following bearish activity in its options. In-the-money put buyers are populating the front month as well as the April contract, suggesting shares may have further to fall in the near term. Traders purchased more than 500 in-the-money JTX March 1.5 Puts for an average premium of 75 cents each, and picked up another 270 of the puts JTX March 1.0 Put for an average premium of 26 cents apiece. Volume is heaviest at the JTX April 1.0 Put strike where more than 2,200 contracts changed hands on open interest of just 448 contracts. It looks like the majority, or around 2,100 contracts, were purchased for an average premium of 30 cents a-pop. Investors long the put options are poised to profit should shares in JTX slip beneath the average breakeven price to the downside at $0.70 by April expiration day. Options implied volatility on Jackson Hewitt is up 38.9% to stand at 221.96 as of 11:35 am in New York.
Starbucks Corp. (NASDAQ: SBUX) — The specialty coffee company’s shares are bucking the trend today on news of a deal with Green Mountain Coffee Roasters (NASDAQ: GMCR) that will make Starbucks coffee and Tazo tea pods available to users of the single-cup Keurig coffee machines. Investors are cheering the agreement, sending shares in both up substantially. Shares in SBUX increased as much as 8.7% this morning to hit an intraday and more than four-year high of $37.56. Demand for SBUX options jumped on the announcement, sending implied volatility on the stock up, with the overall reading currently standing 14.1% higher on the session at 31.02 as of 11:50 am. Investors are slightly favoring calls over puts, trading around 1.25 call options on Starbucks for each single put option thus far in the session. It looks like one strategist may be locking in the rally by purchasing a put spread in the July contract. The investor appears to have picked up 1,000 in-the-money SBUX July 38 Puts for a premium of $2.85 each, marked against the sale of the same number of the SBUX July 33 Puts at a premium of 97 cents apiece. Net premium paid to initiate the transaction amounts to $1.88 each. The trader responsible for the put spread may be hedging a long position in the underlying, or could be positioning to profit from a correction in SBUX shares ahead of July expiration. Profits, or downside protection, kick in if shares in the coffee company slip 3.8% off today’s high of $37.56 to breach the effective breakeven price of $36.12 by expiration day in July. Maximum potential profits of $3.12 per contract are available to the put player should shares surrender 12.1% of their value to trade below $33.00 ahead of expiration. More than 36,000 option contracts changed hands on Starbucks Corp. in the first half of the session.
Andrew Wilkinson is senior market analyst with Interactive Brokers, the professional’s gateway to the world’s markets.