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Call buyers eye rebound in Guess? shares

Call buyers eye rebound in Guess? sharesGuess?, Inc. (NYSE:GES) – Contrarian options trades initiated on apparel retailer, Guess?, Inc., this morning look for shares in the name to rebound during the next five months. The stock is down sharply on Friday, trading 4.7% lower on the session at $24.67 as of 11:15 a.m. ET, after the company announced Thursday the resignations of its CFO and COO. The price of the underlying earlier slumped 10.4% to a fresh three-year low of $23.20 amid news of the executive resignations and after a number of analysts cut ratings and share price targets on the stock. Options players positioning for Guess shares to recover next year purchased more than 6,000 calls at the Mar. 2013 $26 strike this morning for an average premium of $1.47 per contract. Call buyers stand ready to profit at expiration in March should shares in the specialty retailer rally 11% over the current level of $24.67 to top the average breakeven price of $27.47. Shares in GES last traded above $27.47 at the end of September. Guess?, Inc. is scheduled to report third-quarter earnings at the end of the month.

Starbucks Corporation (NASDAQ:SBUX) – Shares in the retailer of specialty coffee, beverages and snacks are soaring this morning after the company reported better-than-expected fourth-quarter earnings on Thursday after the bell and raised its quarterly dividend by 24% to $0.21 a share. Starbucks shares increased as much as 11.4% in the first half of the trading session to $51.94, the highest level since mid-September. Some options traders appear to be gearing up for continued gains in the price of the underlying next week by purchasing weekly calls that expire next Friday. Bullish players snapped up more than 320 of the Nov. 09 ’12 $52 strike calls for an average premium of $0.39 apiece. Volume in these weekly options is heaviest up at the Nov. 09 ’12 $52.5 strike call, where more than 2,000 calls changed hands against open interest of 24 contracts. It looks like most of the $52.5 calls were purchased this morning for an average premium of $0.38 apiece. Traders long the calls stand ready to profit at expiration next week in the event that SBUX shares rise another 1.8% to exceed the average breakeven price of $52.88. One or more options traders who purchased 1,200 of the Nov. 09 ’12 $48 strike calls on Thursday ahead of the fourth-quarter earnings release saw a big pop in the price of their positions overnight. It looks like strategists paid an average premium of $0.70 apiece yesterday for the $48 strike calls, which today are changing hands at nearly five times that amount with a last traded price of $3.45 on the contracts.

Grand Canyon Education Inc (NASDAQ:LOPE) – The provider of online post-secondary education services rallied to a two-year high of $25.00 today after the company reported better-than-expected third-quarter earnings on improved student enrollment and higher-than-expected fourth-quarter and full-year forecasts. Shares are off their highest levels of the session, but are still up nearly 12% on the day at $24.17 as of midday in New York. Options traders dabbling in December expiry put options today appear to be locking in gains, securing downside protection in case the stock surrenders some of the strong rally by year end. The Dec. $25 strike puts are the most active options on Grand Canyon Education so far today, with more than 1,200 lots in play versus open interest of 108 contracts. It looks like most of the $25 strike in-the-money put options were purchased earlier in the session for an average premium of $1.68 apiece. Profits, or downside protection, kick in if shares in LOPE decline 3.5% in the next seven weeks to breach the average breakeven price of $23.32 by 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.

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