Thursday’s Notable Options Activity – $AMAT, $EBAY, $HRB, $TLT

by CC March 20, 2015 7:57 am • Commentary

Here is some generally directional, untied options activity that caught my eye during Thursday’s trading:

1. HRB – An interesting trade went up with the stock around $32, a trader sold 20,000 of the April 31/33 strangles at .85 and used those proceeds to finance most of the purchase of 20,000 of the July 34 calls for 1.05, to open.  This trade is targeting little to no move over the next month with a breakout afterwards.

2. TLT – While the bond market clearly sees the change in the Fed’s statement as a continuation of their dovish stance. A trader thinks we see even more volatility in bonds over the next month. A buyer paid $5.25 for 4500 of the April 128 straddles . This trade is slightly bullish (about 35 deltas) and breaks even at 122.75 on the downside and 133.25 on the upside.

3. AMAT – The opposite of the TLT trade as someone is looking for AMAT not to move too much between now and October expiration. When the stock was just above $24 a trader sold 25,000 of the Oct 25 straddles at $5.05 to open. If the stock is at $25 on Oct expiration the trader would receive $12.6 million in premium, the trader can make up to $5.10 between $19.90 and $30.10.  The worst case scenario is the that the trader is put 2.5 million shares of stock at $25. Less the premium received that would meaning effectively owning the stock at $19.90, down 17%. On the upside, if the stock is above $25 on October expiration the trader would be short 2.5 million shares, but effectively at $30.10, or up 25%. I suspect this is a yield enhancement trade against a long stock position. If that’s the case the investor is willing to sell their shares at $25 on Oct expiration, but would be locking in a 25% gain in the process. They are also obligated to double the position if the stock is below $25.

4. EBAY – A fairly large bullish trade was made in Ebay in the form of a call spread risk reversal. A trader bought 8500 of the Oct 62.5 calls for 2.42 and sold 8500 Oct 70 calls at 0.72. That’s a call spread for 1.70. They financed that position and added even more deltas by selling 8500 of the Oct 52.5 puts at 2.05 for a net credit on the entire trade of 0.35. The trade has a long delta of almost 50 with the potential for 7.85 in profits if the stock is above $70 on October expiration. It simply gains .35 if the stock is between 70 and 52.5 and the trader is put the stock below 52.15.  We highlighted the same trade on Tuesday when the stock was higher at $59.40:

EBAY – options volume ran more than 2x avg daily, with one large bullish trade dominating the flow. When the stock was 59.40 a trader sold to open 10,000 Oct 52.50 puts at 1.68 and bought 10,000 of the Oct 62.50/70 call spread for 2.08, so the package cost 40 cents. On the upside breaks even at 62.90, with max gain of 7.10 at 70 or higher,. The worst case is stock is 52.50 or lower and they lose the premium paid plus one for one on the stock.  18,700 ended up trading in all three legs of this trade.