Thursday Options Brief: HRB, ANF, CSC & EWH

Andrew Wilkinson submits: H&R Block, Inc. (HRB) – The biggest U.S. tax preparer’s shares plunged 13.2% in early trading to touch down at an intraday and new 52-week low of $13.44 after the firm’s president and CEO, Russ Smyth, quit. Shares are currently down a lesser 7.15% on the day to stand at $14.38 as of 11:25 am (ET). News of Smyth’s departure after nearly two years as HRB’s CEO inspired a jump in options activity on the stock and sent HRB’s overall reading of options implied volatility soaring 19.6% to 39.27% by 11:30 am (ET). Contrarian investors looking for shares of the underlying stock to rebound somewhat by January 2011 expiration dominated trading in HRB options in the first half of the session. Bullish players picked up 1,600 calls at the January 2011 $15 strike for an average premium of $1.14 apiece. Investors long the calls make money if, by expiration, H&R Block’s shares rally 12.2% over the current price of $14.38 to trade above the average breakeven point on the calls at $16.14. Optimists anticipating a more robust upward move in shares purchased 1,700 calls at the higher January 2011 $19 strike for an average premium of $0.29 each. Traders long these contracts profit if HRB shares surge 34.1% to trade above the average breakeven price of $19.29 by expiration day. Finally, bullish traders coveted at least 4,800 call options at the higher January 2011 $20 strike for an average premium of $0.22 per contract. Call buyers at this strike price start to accumulate profits if H&R Block’s shares jump 40.6% from the current price of $14.38 to surpass the average breakeven price of $20.22 ahead of January 2011 expiration. Abercrombie & Fitch Co. (ANF) – Bullish options traders flocked to the clothing retailer today with shares of the underlying stock rallying as much as 10.55% during morning trading to secure an intraday high of $36.37. Abercrombie’s shares are soaring after the firm said revenue in stores open for at least one year rose 9% in June, trumping average analyst estimates of a 2.9% rise in same-store sales in the previous month. ANF’s shares are currently up 8.00% on the day to arrive at $35.54 by 11:55 am (ET). Investors eyeing further upside potential bought at least 1,400 calls at the July $36 strike for an average premium of $0.89 apiece. Call buyers at this strike make money if the retailer’s shares rally above $36.89 ahead of expiration day next Friday. Optimistic players also sold 1,000 puts at the July $35 strike to pocket an average premium of $0.71 per contract. Put sellers keep the full premium received today as long as ANF shares exceed $35.00 through July expiration. Options volume picked up in the August contract where it appears a number of investors are enacting diverse strategies. It looks like some traders may be selling strangles on the stock while other investors are selling out-of-the-money calls to finance the purchase of put options. Strangle sellers appear to be shedding approximately 7,000 puts at the August $32 strike for an average premium of $1.20 each in conjunction with the same of about the same number of calls at the higher August $38 strike for an average premium of $1.34 apiece. Gross premium enjoyed on the sale amounts to $2.54 per contract and is safe in investors’ wallets as long as ANF’s shares trade within the boundaries of the strike prices described through expiration day next month. The short strangle in this case leaves traders vulnerable to losses should shares of the underlying stock rally above the upper breakeven price of $40.54, or if shares trade below the lower breakeven point at $29.46, by August expiration. Complete Story »