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Buyers of Titanium Metals Corp. calls ahead of PCP deal raking it in as shares soar

Buyers of Titanium Metals Corp. calls ahead of PCP deal raking it in as shares soarTitanium Metals Corp (NYSE:TIE) – Shares in the producer of titanium melted and mill products are up better than 40% on Monday after Precision Castparts Corp. announced late on Friday it will buy Titanium Metals Corp. for $16.50 a share. Options traders who purchased upside calls as recently as Friday afternoon are, in some cases, enjoying massive gains in the value of their options contracts today given the move in the stock. For example, open interest in the Nov. $12 strike call increased by around 200 contracts on Friday, with the bulk of that volume established by traders spending an average of $0.13 apiece to get long the options. The Nov. $12 strike calls this afternoon are changing hands at a last-traded price of $4.40 each, a more than thirty-fold increase since Friday. Four weeks ago, one or more bullish traders purchased 800 calls at the Nov. $13 strike at a premium of $0.15 per contract. The Nov. $13 strike call options currently tout a price tag of $3.60 apiece as of 1:10 p.m. ET, or twenty-four times what traders paid back on October 15th. As of the time of this writing, upwards of 11,300 options have changed hands on Titanium Metals Corp. The most active contracts at present are in-the-money call options in play at the Jan. 2013 $15 and $16 striking prices.

Eli Lilly & Co. (NYSE:LLY) – Bullish options are in play on drug maker, Eli Lilly and Co., today as shares in the name tack on 2.3% to $48.56 in early-afternoon trading. The company is scheduled to present Phase II data in rheumatoid arthritis for two investigational autoimmune drugs at the annual meeting of the American College of Rheumatology tomorrow, according to a press release issued by the company last week, and will present at the Credit Suisse 2012 Healthcare Conference on Thursday morning. Traders looking for shares in the name to extend gains this week purchased more than 5,000 calls at the Nov. $48 strike for an average premium of $0.30 apiece. Traders long the calls stand ready to profit at expiration later this week as long as Lilly’s shares exceed the average breakeven price of $48.30. The stock had traded up to a 52-week high of $53.99 as recently as October 17th.

Flagstar Bancorp Inc (NYSE:FBC) – Call options on Flagstar Bancorp are more active than usual today as one strategist appears to be adding to positions that benefit from limited gains in the price of the underlying shares through expiration in January 2013. Shares in FBC, the holding company for Flagstar Bank, are up 2.25% this afternoon to stand at a new 52-week high of $16.43 as of 12:20 p.m. ET. The Jan. 2013 $15 and $17.5 strike call options were active during Friday’s session with one-by-two ratio call spreads trading at an average net premium of $0.66 per contract. Similarly, this morning one strategist purchased 400 of the Jan. 2013 $15 strike calls and sold 800 of the $17.5 strike calls at a net premium outlay of $0.50 per contract. The position looks for Flagstar Bancorp to extend gains during the next couple of months to expiration. The spread established this morning makes money if shares in FBC exceed the breakeven price of $15.50, with maximum possible profits of $2.00 per contract available on the position should shares rise 6.5% over the current price of $16.43 to settle at $17.50 at expiration. Shares in the name last traded around $17.50 back in March 2011.

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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