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Bullish options in play as CarMax shares pop

Bullish options in play as CarMax shares popCarMax, Inc (NYSE:KMX) – Shares in used vehicle retailer, CarMax, Inc., jumped 13% this morning to $33.00 on positive comments regarding revenue growth and same-store sales at ITG Research. The stock is off its earlier highs this afternoon, trading up 9.3% on the day at $31.90 as of 12:40 p.m. ET. Options traders flocked to CarMax options straight out of the gate this morning, snapping up calls across several expiries to position for further upside in the price of the underlying. Near-term bullish positioning in the front month options is heaviest at the Oct. $32 strike, where around 1,200 calls were purchased for an average premium of $0.50 apiece. Traders long the $32 calls stand ready to profit at October expiration in the event that KMX shares add 1.9% to the current price of $31.90 to exceed the average breakeven point at $32.50. Upside calls expiring November 16th attracted fresh interest, as well. Options traders picked up around 700 of the Nov. $33 strike call at an average premium of $0.92 each and purchased some 480 calls at the Nov. $34 strike for an average premium of $0.60 apiece. Call buyers that may see profits in the event that KMX shares soar to a new 52-week high by November expiration, bought more than 300 calls at the Nov. $35 strike for an average premium of $0.39 per contract. Buyers of the $35 strike call start making money if CarMax’s shares surge 11% over the current price of $31.90 to top $35.39 by expiration next month.

Alcoa Inc. (NYSE:AA) – All eyes will be on aluminum producer, Alcoa, Inc., on Tuesday when the company reports third-quarter earnings after the closing bell. Shares in the name are bucking the trend on a down day for the broader market, trading up 0.80% to stand at $9.16 as of 11:50 a.m. in New York. Options volume is heavier than usual leading up to tomorrow’s earnings release, with upwards of 40,000 contracts in play so far versus the stock’s average daily options volume of roughly 30,300 contracts. Call options are slightly more active than puts just before midday, due in part to trading traffic in the Nov. $10 strike call. Traders exchanged nearly 9,000 calls at the Nov. $10 strike this morning against open interest of 1,542 contracts. It looks like most of the call options were purchased for an average premium of $0.13 apiece, thus positioning buyers to profit in the event of a near 11% rally in the price of the underlying to exceed $10.13 by November expiration. Shares in Alcoa last traded above $10.13 back in April.

Moody’s Corporation (NYSE:MCO) – A burst of put buying on ratings agency, Moody’s Corp., pushed the stock onto our ‘hot by options volume’ market scanner this morning. Shares in the name are currently down 0.90% to stand at $44.51 as of 12:00 p.m. ET. One or more options strategists appear to be betting on further declines in the price of the underlying in the near term. Put buyers may be securing downside protection to hedge long stock in the name, or could be establishing outright bearish positions on Moody’s ahead of the company’s third-quarter earnings report on October 26th. Traders focused in on the Nov. $44 strike put, trading 5,000 of the contracts this morning against previously existing open interest of 18 contracts. Most of the puts appear to have been purchased for an average premium of $1.55 apiece. The bearish options make money if shares in Moody’s Corp. slip 4.6% to breach the average breakeven point on the downside at $42.45 by expiration next month.

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.

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