Overstock.com calls in play as shares hit fresh 52-week high

Overstock.com calls in play as shares hit fresh 52-week highOverstock.com, Inc. (NASDAQ:OSTK) – Options on online retailer, Overstock.com, Inc., are more active than usual this morning as shares in the retailer of closeout and discount merchandise rally sharply for a second straight day. Shares in Overstock.com rallied as much as 40% since Thursday morning when the company reported it swung to a third-quarter profit of $0.11 a share from a loss of $0.33 a share in the year ago quarter. The stock is off its highs of the session, but currently trades up 5.85% as of midday on Friday to stand at $14.30. Options traders positioning for shares in Overstock.com to extend gains in the near term snapped up front month calls this morning. Volume is heaviest at the Nov. $15 strike, where upwards of 700 call options are in play versus previously existing open interest of 10 contracts. Most of the volume appears to have been purchased for an average premium of $0.36 apiece, thus preparing buyers to profit should shares in OSTK tack on another 7% in the next three weeks to settle above an average breakeven price of $15.36 at November expiration. Shares are currently trading at their highest level since July 2011.

HMS Holdings Corp. (NASDAQ:HMSY) – Shares in the provider of cost management services for government-sponsored health and human services programs are getting hammered today, plunging 27% earlier in the session to a four-year low of $19.66. The stock dropped after HMS Holdings Corp. posted weaker-than-expected third-quarter earnings ahead of the opening bell and lowered its 2012 earnings and revenue forecast from prior estimates. Interestingly, options activity on HMSY suggests one or more options traders are taking a near-term contrarian view on the stock, positioning for the price of the underlying to rebound somewhat by November expiration. It looks like traders purchased 2,000 calls at the Nov. $22.5 strike for an average premium of $0.50 apiece. These contracts may be profitable at expiration next month in the event that HMSY’s shares reverse course, gain at least 9.1% over current price of $21.08, and settle above the average breakeven price of $23.00.

NutriSystem Inc. (NASDAQ:NTRI) – Third-quarter earnings from the provider of weight management services are just around the corner, and it looks like some options players are gearing up for a rally in the price of the underlying shares. NutriSystem shares, which had been in positive territory this morning, reversed earlier gains to stand 1% lower on the session at $9.96 as of 12:30 p.m. ET. The stock is down more than 35% since the start of the year. Strategists positioning for a post-earnings pop in the share price snapped up front month calls, purchasing more than 500 of the Nov. $11 strike call for a premium of $0.10 each, and buying around 1,300 of the Nov. $12 strike call at a premium of $0.05 apiece. Call buyers stand ready to profit at November expiration should NTRI shares surge 11% and 21%, respectively, to exceed effective breakeven prices of $11.10 and $12.05. NutriSystem is scheduled to report third-quarter earnings next Friday.

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.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.