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Upside calls active on Aetna ahead of earnings

Upside calls active on Aetna ahead of earningsAetna Inc. (NYSE:AET) – Shares in Aetna, up 25% since the end of July, tacked on 1.6% this morning to touch an intraday high of $44.23. Heavy call options activity on the stock today suggests some traders are positioning for shares in the health insurer to extend gains in the near term. Call options on AET are far more active than puts, with the call-to-put ratio topping 37-to-1 in early-afternoon trade. Much of the trading traffic in Aetna options today occurred at the Nov. $45 strike, where upwards of 10,000 calls changed hands against open interest of 2,200 contracts. It looks like most of the call options were purchased in the first hour of the trading session at a premium of $1.12 per contract. Traders long the $45 strike calls stand ready to profit at expiration next month should Aetna’s shares rally another 4.3% to top the breakeven price of $46.12. Bullish positioning also spread to the higher Nov. $46 strike, where it looks like some 620 calls were purchased for an average premium of $0.88 apiece. These contracts may be profitable come expiration given a 5% increase in the price of the underlying to $46.88. Aetna Inc. is scheduled to report third-quarter earnings prior to the open on Thursday.

MGIC Investment Corp. (NYSE:MTG) – Mortgage insurer, MGIC Investment Corp., was among the most active names by options volume this morning after one strategist initiated a sizable bull call spread in the January 2013 expiry options. Shares in MTG ticked higher earlier in the session, but currently trade flat on the day at $2.02 as of 11:45 a.m. ET, ahead of the company’s third-quarter earnings report due out after the closing bell. It looks like one trader purchased roughly 10,000 calls at the Jan. 2013 $2.5 strike for a premium of $0.38 apiece, and sold around the same number of calls at the higher Jan. 2013 $3.0 strike at a premium of $0.21 apiece. Net premium paid to establish the spread amount to $0.17 per contract and prepares the trader to profit in the event that MTG shares rally 32% to top the breakeven price of $2.67. Maximum potential profits of $0.33 per contract are available on the position should shares in the mortgage insurer gain nearly 50% to settle at $3.00 by January expiration. Shares in the name last traded above $3.00 back in July.

Gentex Corporation (NASDAQ:GNTX) – Options on the maker of fire detection products and automatic-dimming rearview mirrors are more active than usual this morning ahead of the company’s third-quarter earnings report ahead of the open tomorrow. Shares in Gentex Corp. are up 1.3% at $17.18 as of midday in New York, but front month put buyers appear to be positioning for the price of the underlying to reverse course in the near term. The Nov. $15 strike put attracted the heaviest volume this morning, with around 2,800 contracts in play versus open interest of 466 positions. It looks like most of the puts were purchased for an average premium of $0.30 apiece. Put buyers may profit at expiration next month in the event that Gentex’s shares drop 14% to breach the average breakeven point on the downside at $14.70. Shares in GNTX are off their lowest level of the year, up nearly 20% since the end of July; however, shares are still down more than 40% since the start of 2012.

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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