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Call buying detected even as Express shares plummet

Call buying detected even as Express shares plummetExpress, Inc. (NYSE:EXPR) – Specialty retailer Express, Inc.’s shares are getting hammered today, down more than 20% at $11.90 as of 11:10 a.m. in New York, after the company lowered its third-quarter earnings forecast and said same-store sales will decline in the mid-single digit range. Express, Inc. shares, publicly traded since the company’s May 2010 IPO, have not yet managed to catch a bid in today’s session as the stock continues to hit fresh record lows. Options traders betting shares in the name will rebound by the start of the new calendar year snapped up January 2013 expiry call options this morning. Contrarian bets are heaviest at the Jan. 2013 $15 strike where approximately 975 calls were purchased at a premium of $0.45 apiece. Call buyers may profit at expiration next year in the event that EXPR shares jump 30% over the current price of $11.90 to top the effective breakeven point at $15.45. Getting long the Jan. 2013 $15 call has been painful for one or more options traders who appear to have purchased at least 550 of the contracts back on September 4th for a premium of $2.20 per contract. The value of the call options has collapsed in the four weeks since then, down nearly 90% so far to the current asking price of $0.30 apiece.

Aeropostale, Inc. (NYSE:ARO) – Shares in teen retailer, Aeropostale, Inc., are moving lower this morning, perhaps in sympathy with Express, Inc., after the specialty retailer cut its third quarter profit forecast. ARO shares are currently down 2.3% at $13.05 as of 11:00 a.m. ET, and it looks like some options traders are positioning for the price of the underlying to extend losses in the near term. Trading traffic in Aeropostale options is heaviest in the Oct. $13 strike put where more than 8,000 contracts have changed hands versus open interest of 1,239 positions. It looks like most of the put options were purchased for an average premium of $0.51 apiece, thus positioning buyers to profit on the downside should shares in ARO decline another 4.3% to breach the average breakeven price of $12.49 by October expiration. Shares in the teen retailer last traded below $12.49 in August; the stock is down nearly 45% since the end of April.

Aruba Networks, Inc. (NASDAQ:ARUN) – Traders pounced on Aruba Networks put options straight out of the gate this morning after the company filed to delay its form 10-K, citing time to review the effectiveness of its internal controls. Shares in ARUN reacted negatively to the news on Tuesday, sliding 8.75% lower to $20.42 early in the session. A burst of bearish activity in Aruba options minutes after the opening bell indicates some strategists are wary the shares could continue to sell off. Volume is heaviest in the $20 strike put expiring in October and November, changing hands nearly 3,000 times and upwards of 1,500 times each, respectively. Options traders appear to be purchasing most of the volume at average premiums of $0.75 apiece for the Oct. $20 put and $1.20 per contract for the Nov. $20 strike put. Bearish positions in the Nov. $17, $18 and $19 strike put options are increasing, as well. Traders buying around 1,000 puts at the Nov. $17 strike for an average premium of $0.55 apiece, for example, profit if ARUN’s shares drop 19% from today’s low of $20.42 to settle below the average breakeven price of $16.45 at expiration next month. Aruba is scheduled to report first-quarter earnings after the final bell on November 15th, one day prior to November options 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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