Today’s tickers: ETFC, FRO, JCI, TTWO, OMX
ETFC – Shares in E*Trade climbed 18% to $5.03 on an otherwise thin-volume day for options after CNBC reported that the besieged online brokerage is in talks with a number of potential buyers. Talks reportedly concern a wholesale takeover of the entire firm, or a possible divestiture of its brokerage business. No specific candidates for a buyout were mentioned, nor did the network identify its sources, which it claimed had firsthand knowledge of the talks. The report was enough for option traders to put some 88,000 contracts in play in the first hours of market action on this abbreviated post-holiday session, more than 3 times as many calls moving as puts. The brunt of today’s action was seen in December calls at the 5 and 6 strikes, which were bought heavily on volume approaching 15,000 lots at each strike. Current delta readings suggest option prices reflect a better than 60% chance that E*Trade’s share price can remain above the modest $5 mark through December. Selling in December puts at strikes of 4 and 5 indicates at least some measure of confidence that, deal or no deal, E*Trade may be effectively buttressed against a revisit of the abysmal $3 lows seen earlier this month.
FRO – Options in Frontline (FRO), the world’s largest operator of so-called VLCC (very large crude carrier) supertankers, are attracting nearly twice the average daily interest from traders, as shares in the company sail on a 8% gain to $45.91. The company has been a magnet for positive analyst comment and investor attention in recent weeks, despite a more mottled outlook for the broader oil tanker sector, owing to its success in converting double-hulled oil tankers to alternative uses as offshore storage and production units, while selling other vessels in its fleet at substantial profits. The brunt of today’s volume is occurring in December 45 puts, which have sold to the bid around 1,300 times, as traders sought long positions at the same strike in December calls.
JCI – Shares in Johnson Controls (JCI), the maker of automobile seating, interior systems and batteries, moved a sliver higher to $36.16 today. Earlier this week, the company announced the purchase of Ford’s plastics processing site in Michigan. The deal is pending the outcome of collective bargaining talks with the UAW. While the current share price reflects a $0.10 premium on the average price for the year-to-date, Johnson’s share price has shown a steady 18% decline from its late-October high of $44.46, and option traders appear to be expecting continued downside in the coming months. Option traders put some 6,000 contracts in play, matching up against nearly a quarter of its total open interest and representing more than 3 times the daily average, with fresh long positions entered in the January 35 puts. A look at option implied volatility shows traders expecting Johnson shares to exhibit 15% more volatility over the next month than they have shown historically.
TTWO – Shares in game maker Take Two Interactive (TTWO) , the maestros behind the popular Grand Theft Auto and Manhunt video game series, slid half a percent to $14.77 today, two days after the company announced the securing of a 5-year, $140 million credit facility to cover its working capital needs through the holiday season and into 2008. The company has endured a rough ride this year, underperforming the S&P smallcap index by 15.4% and its subordinated information technology index by 10%. Today its options are moving at twice the average rate, with 7,000 options in play expressing traders’ inclination to enter call spreads in the December contract between the 15 and 25 strikes, and in the January contract between the strikes of 17.50 and 22.50. This activity implies some degree of optimism – highly circumspect as it may, hence the “spread” by selling some calls against the purchase of others – in Take Two’s prospects for the next two months. At more than 77%, the company’s implied volatility reads some 1.5 times the historic gauge, suggesting a heightened anticipation of greater share price fluctuation being priced into the company’s option premiums at present.
OMX – Shares in Officemax (OMX), the country’s third-largest office supplies retailer, advanced 2.3% to $24.00 this morning, and while its 3,000 option contracts in circulation appear modest in absolute terms, that’s more than twice the volume its normally sedentary options see. Today’s action was concentrated firmly in January 25 calls, where traders entered fresh longs at premiums of around $1.40 today. The position implies the beginnings of a recovery of sorts in 2008 for Officemax shares, which have lost more than half their value this year to date. Implied volatility at 47% has remained fairly static over much of the autumn.
VIX – Finally, volatility as measured in the CBOE Volatility Index pulled back 5% to read 25.36 today as leading indexes gained on Black Friday on optimism that retailers may prove their mettle on retooled, retinkered approaches to the Christmas shopping season made necessary by higher fuel prices, lower home values and recessionary fears denting consumer-driven industries. With 23,000 option contracts in play before noon, volume in VIX options is sparse today but call-side positioning in the December contract shows willingness among option traders to place bets on higher volatility at strikes of 25, 27.50 and 30, but nearly a quarter of today’s volume is located in December 22.50 puts, which traded at around $1.00 apiece some 5,750 times. Delta on this put shows that current prices reflect about a 1-in-4 chance of the VIX settling below 22.50 upon December’s expiry.
