Unusual Options Activity

1. CBI- Nearly 3,000 Feb 20 $40.50 calls traded this morning with the majority being bought for $0.30 each, against open interest of 16 contracts. These near-term call buyers are specifically going for out-of-the-money options that expire a week before the Q4 earnings report. The call to put ratio is 10:1 and call activity is 2.5x the average daily volume. Shares are now nearing a retest of the 8-month resistance level at the 10-week EMA (breakeven for the calls is at the key moving average). Wall Street analysts continue to lower their price targets as shares have been cut in more than half, but still have a consensus target in the $60’s. Recently on January 22nd, Bank of America initiated the stock with an underperform rating and a $34 price target. Short interest remains relatively high at 8.27%, totaling just under 9M shares sold short. Using 2015 estimate,s Chicago Bridge & Iron trades at a P/E ratio of 7x (EPS estimates have fallen from $5.88 to $5.64 in 3 months), price to sales ratio of 0.33x, and a price to book ratio of 1.55x. The $4.2B industrial company has been hurt by falling commodity prices and the strength in the U.S. dollar, hence the now single digit forward earnings multiple.
2. FOSL- The Feb 20 $91/$97 2×1 ratio bear put spread was put on 4,000 times for a $1.90 debit. Volume was above the open interest in both options. A maximum gain would occur on a close at $91 on Friday (spread would be worth $6.00). Since this is a ratio spread losses can happen if shares fall into the mid to higher $80’s this week. Fossil Group reports Q4 earnings after the bell tonight (declined on 2 out of the last 3 reports, but higher on 4 of the last 7). The options market is pricing in a $8.90 move, or 9.03%, in either direction through Friday’s close. Looking at the daily and weekly chart we can see that the trend is still bearish on both time frames (6 months and 2 years). Fossil shares trade at a forward P/E ratio of 13.06x with mid to high single digit top and bottom line growth, but the lower gross and operating margins are a culprit in the poor share price performance since November of 2013 (even with the company’s share buybacks). On January 23rd, Barclays kept their underweight rating, but lowered their price target to $95 from $100. Short interest has been steadily increasing to 13.74% now, which means it would take 5.4 days to cover the bearish positions.
3. FTR- Another 2,000 Aug $9 calls were purchased for $0.35 each, against open interest of 9,401 contracts. This follows 2,000 bought on Friday as well and more than 9,000 total since February 5th. Total call open interest is currently 119,506 vs total put open interest of 44,846 contracts. Frontier Communications will be releasing Q4 earnings after the bell on Thursday (shares have dropped on 5 out of the last 7 reports). At the start of this month the stock broke out above the $7 resistance level, rising on 12 of the last 13 trading sessions. This rally is in large part due to their $10.5B acquisition of Verizon Wireless’s (VZ) wireline businesses in California, Florida, and Texas. Frontier trades at a P/E ratio of 34.96x (2015 estimates) with 26.3% EPS growth, P/S ratio of 1.82x, and a P/B ratio of 2.16x. Revenue growth is likely to come back this year to the tune of 17%, or $5.60B. The company also pays a dividend yield of 4.77% vs (VZ)’s 4.49% yield.
4. JNJ- 5,000 Mar 20 $100 calls were bought for $1.29 each, against open interest of 3,151 contracts. The call to put ratio was 4:1 and implied volatility rose 7% to 15.67. Unlike the Biotech iShares ETF (IBB) which is on pace to close at a new all-time high on a weekly closing basis, Johnson & Johnson shares are down nearly 9% from the December high of $108.99. However, it did come within just a couple of percentage from retesting the multi-month support level of $95 last week (held on the correction in October). The March call buyer could be making a bet that the worst is behind for J&J and the stock may make a run back into the triple digits over the next month. Johnson & Johnson trades at a P/E ratio of 16.02x (2015 estimates) with 4% EPS growth, P/S ratio of 3.75x, and P/B ratio of 3.65x. The company pays a nice 2.81% dividend compared to the (IBB)’s 0.14% yield.

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CBI FOSL FTR JNJ unusual options activity