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Limited Brands calls look for near-term rally

Limited Brands calls look for near-term rallyLimited Brands, Inc. (NYSE:LTD) – Options on the operator of retail brands Victoria’s Secret, Bath & Body Works and others, are more active than usual today, with volume topping 8,500 contracts as of 1:40 p.m. ET, versus the stock’s average daily options volume of 1,058 contracts. The bulk of the action is in the October expiry options, where it appears one strategist purchased roughly 6,000 calls at the Oct. $49 strike for an average premium of $0.35 apiece. Upside call buying may pay off for the trader at expiration later this week if shares in LTD rally 1.7% over the current price of $48.54 to top the average breakeven price of $49.35. Limited Brands holds its 2012 Investor Day starting at 8:30 a.m. on Wednesday morning. The stock traded up to an all-time high of $52.20 in September.

American Capital Agency Corp. (NASDAQ:AGNC) – Shares in mortgage REIT, American Capital Agency Corp., fell as much as 9% this morning to an intraday low of $29.63, extending recent declines following the Fed’s decision last month to expand its mortgage bond-buying program. The stock, currently off its lows and down 2.4% on the day at $31.91 as of 1:05 p.m. ET, has dropped 13% in the past four weeks. A sizable bullish options trade initiated on AGNC this morning suggests one strategist is prepared to benefit from a rebound in the price of the underlying. The options player appears to have purchased 2,120 calls at the Nov. $31 strike for a premium of $1.27 apiece, and sold 4,240 calls at the Nov. $34 strike at a premium of $0.20 each. Net premium paid to establish the spread amounts to $1.07 per contract, with profits available on the upside in the event that AGNC shares reverse course and top the breakeven price of $32.07 by November expiration. Maximum potential profits of $1.93 per contract are available on the position should shares in the name rally 6.5% to settle at $34.00 at expiration next month. American Capital Agency Corp. is scheduled to report third-quarter earnings after the market closes on October 29th.

LyondellBasell Industries NV (NYSE:LYB) – Commodity chemicals producer, LyondellBasell Industries, popped up on our scanners this morning due to heavier-than-usual trading traffic in the November expiry call options. Shares in LYB, currently up 0.65% on the day at $51.19, have increased sharply during the past 52-weeks, up roughly 90% since this time last year. One or more traders positioning for shares in the name to hit fresh 52-week highs in the near term snapped up around 4,500 calls at the Nov. $55 strike for an average premium of $0.54 apiece. Call buyers stand ready to profit at November expiration should LyondellBasell’s shares climb 8.5% to exceed the average breakeven price of $55.54. LYB reports third-quarter earnings on October 26th prior to the opening bell.

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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