Tuesday Options Brief: CTRP, SNDK, CPB & SLV

Andrew Wilkinson submits: CTrip.com International, Ltd. (CTRP) – Shares of the consolidator of hotel accommodations and airline tickets in China fell as much as 17.65% during the first half of the trading session to touch down at an intraday low of $31.35. Today’s low point of $31.35 for CTRP shares marks an overall 42.3% decline in the price of the stock in just over two weeks time since shares touched an intraday high of $47.01 on June 21, 2010. Shares declined recently on news airlines in China plan to cut commission rates for some domestic flights. The price of the underlying stock was also helped lower by a host of analyst downgrades such as the cut to ‘hold’ from ‘buy’ with a 12-month target price of $42.00 at Deutsche Bank on June 29. Bearish investors dominated the options playing field on CTrip.com International today with call selling and put buying taking place in the July and August contracts. Pessimistic players expecting shares to continue lower ahead of July expiration picked up roughly 800 puts at the July $25 strike for an average premium of $0.15 apiece. Buying interest spread to the higher July $30 strike where 1,200 put options were purchased for an average premium of $0.76 each. Investors long the July $30 strike puts make money if CTRP’s shares decline another 6.7% from today’s low of $31.35 to breach the average breakeven point to the downside at $29.24 by July expiration day. Bearish individuals holding out little hope for a near-term rebound in CTRP’s shares shed 1,000 calls at the July $32 strike to pocket an average premium of $1.83 apiece. Call sellers at this strike keep the full premium received on the transaction as long as shares fail to rally above $32.00 by July expiration. Another 1,000 calls were sold at the higher July $37 strike for an average premium of $0.43 each. Finally, pessimists picked up 1,000 bearish put options at the August $25 strike for a volume-weighted average premium of $0.85 a-pop. Investors long the puts at this strike price accrue profits if, by August expiration, shares of the underlying stock fall another 23% from today’s low to breach the average breakeven point at $24.15. Rapid erosion in CTRP’s shares and greater demand for options on the stock boosted the overall reading of options implied volatility on CTrip.com 17% to 70.73% by 12:50 pm (ET). SanDisk Corp. (SNDK) – Options traders with long-term bullish views on SanDisk Corp. sold in- and out-of-the-money put options in the October and January 2011 contracts this morning with shares of the underlying stock rallying 3.00% to $42.71 by 11:40 am (ET). Investors expecting SanDisk’s shares to continue to climb in the next several months sold 1,000 puts at the October $42 strike to pocket an average premium of $5.025 apiece. Put sellers keep the full premium received today as long as the price of SanDisk’s shares exceeds $42.00 through October expiration day. Optimism spread to the higher October $43 strike where 1,000 in-the-money puts were sold at a premium of $5.50 each. Investors short the October $43 strike puts walk away with the full premium pocketed today if shares are trading above $43.00 ahead of expiration. Another optimistic options player anticipating sharp share price appreciation for SanDisk sold 1,200 deep in-the-money puts at the January 2011 $47 strike to take in a premium of $9.75 per contract. The trader responsible for this transaction keeps the full premium received if SNDK’s shares rally at least 10.00% to trade above $47.00 by expiration day in January 2011. Investors short the puts are apparently happy to have shares of the underlying stock put to them should the puts land in-the-money by expiration day. Traders selling the October $42 and October $43 strike puts could have shares put to them at $36.975 and $37.50, respectively, while the investor selling the January 2011 $47 strike puts may have shares put to him at an effective price of $37.25 each. Complete Story »