Universal Display Corp. options look for near-term rebound

Universal Display Corporation (NASDAQ:PANL) – A surprise third-quarter loss reported yesterday by the provider of technology and components in flat panel displays, lighting and electronics, sent shares in Universal Display Corp. down nearly 25% on Thursday morning to an intraday low of $21.55. A number of analysts cut their ratings on the stock following the earnings miss and after the company lowered its full-year revenue forecast. The stock is off its lows of the session, trading down 18% on the day at $23.03 as of 11:40 a.m. ET. Much of the trading traffic in front month calls and puts indicates some options market participants expect shares in PANL to potentially rebound in the near term, or at least stem further declines ahead of November expiration. Traders betting that PANL shares are at their lowest point for the time being sold in- and out-of-the-money put options that expire at the end of next week. It looks like the single largest put play was the sale of 500 contracts at the Nov. $23 strike for a premium of $0.65 apiece early in the trading session. The seller walks away with the full amount of premium in hand as long as shares in the name settle above $23.00 at expiration. At present, PANL shares have rebounded off an earlier low of $21.55, and the Nov. $23 strike put options are out-of-the-money. Similar positioning was observed at the lower Nov. $20, $21 and $22 strikes, with strategists selling at least a few hundred put contracts at each strike in the early going. Meanwhile, traders prepared to profit from a quick turnaround in the price of the underlying picked up around 300 calls at the Nov. $24 strike for an average premium of $0.74 per contract. Call buyers make money at expiration next week if PANL shares rally at least 7% over the current price of $23.03 to trade above the average breakeven price of $24.74.

Citigroup Inc. (NYSE:C) – Shares in Citigroup, up 1.25% at $36.50 as of 11:15 a.m. ET, are rebounding somewhat today following Wednesday’s sharp selloff in financial stocks and equities across the board. Sizable trades in November expiry call options on Citi this morning indicates one trader may be positioning for limited, albeit substantial, gains in the price of the underlying by expiration next week. It looks like the strategist purchased a 6,620-lot Nov. 16 ’12 $37/$39 bull call spread for a net premium of $0.42 per contract. The spread starts making money if shares in Citigroup rise 2.5% to exceed the effective breakeven point at $37.42, with maximum potential profits of $1.58 per contract available should shares rally 7% to settle at a fresh 52-week high of $39.00 by November expiration.

Dillard’s, Inc. (NYSE:DDS) – Department store operator, Dillard’s, Inc., posted third-quarter earnings that handily beat average analyst estimates ahead of the opening bell this morning, sending shares in the name up more than 7% to a new all-time high of $86.71. The earnings beat and the sharp move in the price of the retailer’s shares today spurred heavier-than-usual activity in Dillard’s options this morning. Overall options volume on the stock is greater than 3,500 contracts as of midday on the East Coast, versus average daily options volume of around 1,026 contracts. Traders positioning for fresh record highs in DDS shares in the near term appear to be responsible for at least some of today’s volume. Near-term bullish traders purchased more than 230 calls at the Nov. $90 strike for an average premium of $0.49 apiece. The Dec. $90 strike calls are also in play, with upwards of 305 lots changing hands versus open interest of 5 contracts. It looks like most of the Dec. $90 calls were purchased for an average premium of $1.80 each earlier in the trading session. Traders long the calls may profit at expiration next month if shares in Dillard’s, Inc. add 6% to today’s high of $86.71, to exceed the average breakeven point at $91.80.

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.