Nike (NKE) and Darden Restaurants (DRI) See Notable Options Activity Post-Earnings

The market has fought all the way back into positive territory after getting knocked down by the Chicago Purchasing Managers survey. Let’s look at What’s Hot! I am Steve Claussen of OptionsHouse

Even during the selloff, trading was relatively quiet this morning as trade desks are focused on Friday’s monthly non-farm payrolls and unemployment release. The action in the S&P 500 Index (SPX) pit has been mixed between buying and selling. The CBOE SPX Volatility Index (VIX) spiked up to a high of 26.45% during the selloff and one trader took advantage of this rise in volatility readings and sold the December 850/1150 strangle at $14.60. This trader is betting on a range-bound S&P 500 index as we enter the fourth quarter.

Now, checking out the OptionsHouse Hotlist!

Darden Restaurants (DRI), whose brands include Red Lobster and Olive Garden among others, announced earnings and guidance last night and noted that their same-store sales fell much more than the Street expected. The stock is currently off 7% after hitting a low of $32.51 earlier in the day.

The options have traded more than 30,000 contracts and one trade being shown is the November 30 buy/write, being offered at 70 cents. Note this is an in-the-money buy-write, meaning the call strike sold is in-the-money.

It is quoted at 70 cents, meaning that is the premium plus the strike price, minus the stock purchased. The customer is collecting this excess amount, so that is the maximum profit, 70 cents. The maximum potential loss is strike minus the premium, or $29.30.

Also on the Hotlist is another earnings name, Nike (NKE). They announced great earnings last night and the stock is just doing it to the tune of almost a $5 gaint today. The options have traded over 40,000 contracts and the action being shown by my sources indicates a possible view that the stock won’t give up these gains.

The January 50 put is being offered at 40 cents. This may be what is called a cash-secured put as traders offer downside puts on a strike that they have the cash in their accounts to buy the stock. Again, the maximum profit is limited to the premium collected and the risk here is being forced to buy the stock at strike price should the shares fall below 50.

You may notice the risk reward for a downside naked put sale is exactly the same as an in-the-money buywrite. Buying a buywrite is also known as selling a synthetic put.