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Bearish options in play at Disney

The Walt Disney Company (NYSE:DIS) – Put options on the world’s largest entertainment company are active on a morning that finds U.S. equities reversing earlier losses and moving into positive territory on favorable comments from Speaker of the House, John Boehner, regarding budget talks. The Walt Disney Company (NYSE:DIS) shares, in negative territory for much of the morning, are currently flat on the session at $48.60 as of 11:25 a.m. ET. Downside puts expiring January 2013 are the most active contracts on The Walt Disney Company (NYSE:DIS) today, with the $44 strike put changing hands upwards of 5,400 times in the first hour of the session. It looks like most of the volume was purchased for an average premium of $0.42 apiece. Put buyers may profit at expiration next year should shares in DIS decline more than 10% from the current price of $48.60 to breach the average breakeven price of $43.58. Put open interest of 8,335 contracts at the Jan. 2013 $44 strike is sufficient to cover today’s volume of roughly 5,400 contracts. The bulk of the previously existing positions comprising open interest were purchased on November 9th. Shares in The Walt Disney Company (NYSE:DIS) have traded above $44.00 since the end of May.

The Walt Disney Company (NYSE:DIS)

The Fresh Market Inc (NASDAQ:TFM) – The operator of 115 food retail stores in 20 states throughout the U.S. popped up on our scanners this morning with options volume up sharply and the price of the underlying down substantially following the company’s third-quarter earnings report and a downgrade to ‘Sell’ from ‘Neutral’ with a 12-month share price target of $45.00 at Northcoast Research. Shares in The Fresh Market Inc (NASDAQ:TFM) are currently down more than 14% at $51.75 as of 12:15 p.m. in New York. Front month put buying on Fresh Market suggests some traders anticipate possible further declines in the near term. The Dec. $50 strike puts attracted the most volume in the first half of the session, with more than 1,000 lots in play versus open interest of 144 contracts. It looks like most of the put options were purchased this morning for an average premium of $2.07 apiece, thus preparing buyers to make money in the event that shares slide 7.4% from the current level to breach the average breakeven price of $47.93 at expiration. Meanwhile, options players long the Dec. $55 strike puts ahead of the stock’s double-digit percentage declines on Wednesday morning saw the value of their contracts sky-rocket overnight. Time and sales data for the Dec. $55 strike puts on Tuesday suggests traders purchased roughly 200 of the contracts for an average premium of $0.94 each yesterday. Traders scooping up deep in-the-money $55 strike put options today paid as much as $6.00 per contract. Though down substantially on the session, shares in Fresh Market are still up roughly 30% since the start of 2012.

Hologic, Inc. (NASDAQ:HOLX) – Shares in the developer of diagnostics products, medical imaging systems and surgical products are up 0.65% at $18.94 just before midday on the East Coast one day after the company held its annual investor meeting. Options activity on the stock this morning suggests one or more traders are positioning for shares to extend gains into year end. A burst of upside call buying in the front month options within the first ten minutes of the opening bell positions some bullish strategists to profit should shares in Hologic, Inc. (NASDAQ:HOLX) pick up a few percentage points during the next three weeks. These traders appear to have purchased roughly 2,500 calls at the Dec. $19 strike for an average premium of $0.56 apiece this morning versus previously existing open interest of 84 contracts. Call buyers profit as long as shares in Hologic, Inc. (NASDAQ:HOLX) rally more than 3.3% to exceed the average breakeven price of $19.56 at December expiration.

Caitlin Duffy

Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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