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Travelers Earnings Excite Option Bulls

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TRV's May 85 call was bought to open on Monday.

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Monday's option traders expressed optimism toward Travelers Companies Inc (NYSE:TRV), ahead of the company's early morning turn in the earnings confessional. Throughout the course of the session, 3,373 calls crossed the tape, compared to 908 puts. TRV's May 85 call was the most sought after strike on the day, where 2,708 contracts traded, mostly at the ask price. With open interest rising overnight, it appears that a fresh batch of bullish positions was initiated.

The now in-the-money calls were picked up for a volume-weighted average price (VWAP) of $1.29, making breakeven $86.29 (strike price plus the VWAP). These calls have easily been pulled into profitable territory today, thanks to Travelers' 2.38% post-earnings pop. At last check, the Dow (INDEXDJX:.DJI) component was lingering near the $86.59 mark.

From a wider sentiment standpoint, option players have been piling up on puts, and not calls, in recent months. The equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.00 ranks just five percentage points from a 52-week peak, suggesting bearish bets have been accumulated over bullish at a near annual-high clip in recent months.

On the charts, TRV has put in a solid performance in 2013, with the stock up roughly 21% year-to-date. This positive price action has been highlighted by the equity's 20- and 32-day moving averages, which helped usher Travelers to a record peak of $89 in today's session.

Given this technical tenacity, the withstanding trend toward puts could be indicative of shareholders using puts to protect profits against a potential pullback. However, to the delight of investors, Travelers is enjoying a solid day in the green, after the insurance issue unveiled a first-quarter earnings beat, as well as boosted its dividend by 4 cents to 50 cents per share.

This article by Karee Venema was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
No positions in stocks mentioned.
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