Wednesday Options Update: BJ, VIA.B, MRK, EEM, PETM & C

Andrew Wilkinson submits: Viacom, Inc. Class B (VIA.B) – Options on the global entertainment content company are active ahead of the release of the firm’s third-quarter earnings report before the opening bell tomorrow. Investors are establishing both bullish and bearish positions on Viacom using near-term put and call options. Viacom’s shares are currently up 0.15% at $38.09 with just fewer than thirty minutes remaining in the trading session. Traders fearing the price of the underlying stock could fall following earnings initiated bear put spreads. Put players picked up approximately 3,000 in-the-money puts at the November $38 strike for an average premium of $0.77 each, and sold about the same number of puts at the lower November $36 strike for an average premium of $0.14 a-pop. Average net premium required to purchase the spread amounts to $0.63 per contract. Thus, investors are prepared to profit, or realize downside protection, in the event that shares in Viacom fall 1.9% from the current price of $38.09 to breach the average breakeven point at $37.37 by expiration day. Maximum potential profits of $1.37 per contract are available if VIA’s shares plunge 5.5% lower to trade below $36.00 by November expiration. Meanwhile, investors taking bullish stances ahead of earnings looked to the November $39 strike to purchase approximately 1,600 calls for an average premium of $0.32 per contract. Call buyers profit if Viacom’s shares rally 3.2% to surpass the average breakeven price of $39.32 by expiration day. BJ’s Wholesale Club, Inc. (BJ) – Reports that the warehouse club operator is considering hiring an advisor to review options including a potential sale to a leveraged-buyout firm in a deal that could net as much as $3 billion sent shares flying higher today and drew speculators to the options market. BJ’s shares are up 11.2% at $46.75 as of 2:00 pm in New York, after earlier rallying as much as 11.99% to an intraday high of $47.07. One investor expecting shares to continue higher ahead of December expiration initiated a three-legged bullish spread, selling put options to partially offset the cost of buying a call spread. The trader picked up 1,000 calls at the December $50 strike for an average premium of $1.05 each, sold the same number of calls at the higher December $55 strike at an average premium of $0.24 per contract, and sold 1,000 puts at the December $40 strike for an average premium of $0.29 apiece. Net premium paid to establish the three-legged spread amounts to $0.52 per contract, thus positioning the investor to make money should BJ’s shares surge 8.05% over the current price of $46.75 to surpass the average breakeven point at $50.52 by expiration day. The options player may walk away with maximum potential profits of $4.48 per contract if the price of the underlying stock jumps 17.6% to trade above $55.00 ahead of December expiration. Renewed LBO speculation and the rise in demand for options on BJ’s Wholesale Club lifted the stock’s overall reading of options implied volatility 7.8% to 39.11% by 2:10 pm this afternoon. Complete Story »