CarMax call holders rejoice

June 20, 2014 06:29 AM

Shares in used auto-dealer CarMax Inc. (Ticker: KMX) are causing investors to celebrate following a positive earnings announcement that lifted its shares by $5.85 (13%) to $51.15.  Around 43,000 option positions are held amongst the derivative community, equally split between bulls and bears. The following chart shows the impact of today’s surging share price on open positions as the windfall lifts call positions from out-to-in-the-money. In other words, if they expired today they would have intrinsic value or could be converted to stock.

We estimate that some 13,700 call options ranging from strikes 46.0 through 50.0 strike have paid off handsomely for CarMaxbulls. Only around 3,000 bearish put options fared the opposite swing as they shifted from in-the-money to out-of-the-money losing their intrinsic appeal. Implied volatility slid by 29% Friday to stand at 21.7% after earnings and as the share price leapt.

Overall option volume remains light at 8,000 contracts but that does put around one-in-four of all positions in play. To get a sense of the impact on call prices on the share price surge, among the most actively traded series is the July 52.5 strike call, where the premium jumped to 95-cents from a closing price of just a nickel ahead of earnings.



Chart: Surge in ITM call options on CarMax post-earnings. 

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.