Today’s tickers: THX, EBAY, YHOO, INTC, CLX, VIX
THRX – Option traders appear confident of an upside move in January for shares in biopharma ticker Theravance (THRX), which develops and markets so-called small-molecule drugs for a host of gastrointestinal and respiratory ailments. Last month, its shares took an 11% tumble after drug giants GlaxoSmithKline and Tokyo-based Astellas Pharma politely declined licensing rights for two drugs in its pipeline.
With the company due to report Q3 earnings on October 25, shares are down 2.7% at $25.68, but options traders piling into upside exposure have sent volume to more than 5 times the daily average. Today’s action involves heavy buying in the January 30, 35 and 40 strikes. The current share price reflects a miniscule 3% premium above its average of the past 3 years. A push toward 40 in January implies a 55% increase from current price levels. Implied volatility, meanwhile, has steadily and dramatically increased over the past 6 weeks since dipping to 46% in late August. Option traders are currently anticipating nearly 85% volatility in Theravance shares going forward. Evidence of something big in the pipeline?
EBAY – Battleworn online auction site Ebay is due to report earnings after the bell today, coinciding with news of an alliance between its overhyped, under-performing Internet phone service acquisition, Skype, and NewsCorp’s MySpace. Under the terms of the deal, Skype will provide Internet call functionality to the social-networking site’s instant messaging feature. Expect investors to seek some response from Ebay on its decline in quality new listings and reported increase in fraudulent listings. With some 89,500 options in play at the noon hour against a 3.5% advance for shares to $39.95, we’re observing what looks like pronounced buying and selling in the October 35/40 strangle. A buyer of this position, which costs $1.30 to enter, anticipates a move either above $41.30 or below $33.70 just subsequent to earnings. Apart from this volatility play, volume appears to favor an upside surprise for Ebay, with builds at the 42.50 strike in October and November.
YHOO – Yahoo! – Last evening’s after-the-bell earnings report from Yahoo! revealed the company is tackling modified business objectives, but offered little in the way of specific forward guidance. The news was good enough for investors, who rejoiced at what they interpreted as a toddle toward prosperity. The report sent shares 8% higher this morning to $28.85. With nearly 250,000 options in play, volume distribution shows a mad dash toward October and November 30.0 calls. More than 20% of the active volume in Yahoo! shares is fixed at the 30.0 strike line in those two contracts.
INTC – Intel – Rude, robust earnings from the world’s leading chipmaker signaled more upside to come, with shares up 4.5% to $26.65 – but significantly, no break of that questionable $27.50 level as yet. With nearly 150,000 options in play, 3 times as many calls are moving as puts. We continue to observe piqued activity in those fron-tmonth 27.50 calls, which still seem to be attracting brash wagers toward upside despite the fact that delta suggests just a 15% chance of an upside move of that magnitude within the next 3 days. By comparison, delta on the same strike in November shows a 35% chance of the 27.50 bet landing in the money over the next month – time value in action.
CLX – A clean move toward upside? For a second consecutive session, we’re observing elevated volume in options of ubiquitous household chemicals maker Clorox. Shares have nudged lower by .32% today to $62.00, and while total volume amounts to a paltry 5,630 lots, that’s equal to about 12% of its existing open interest and represents nearly 10 times the norm. It appears that a trader sold 2,330 lots in the November 60 puts against a similar-sized purchase in the January calls at the 65 strike.
VIX – The 10-point futures rally in the S&P 500 index overnight was possibly more inspired by tech-market events than anything else. While several companies did deliver reasonable earnings news before the session, futures traders paid little heed to a 1% slide in Japan’s Nikkei 225 index. As such it was a no-brainer that volatility would slide to open the session, but whether it remains down is questionable. Early in the session it appears that at least 18,000 November 25 calls were unleashed by an investor, which probably marks a closing position. The contract has current open interest of around 133,000 lots. By lunchtime the VIX was lower by 7.2% at 18.57. Investors did seem to be still interested in buying upside market risk where the evidence stacks up to further call buying at the 27.5 and 30 strikes today. In the December contract, the 25 calls were again most active with some 10,000 lots trading. The action here is most noteworthy given the fact that investors are now lifting offers at higher premiums today at around 1.75 compared to Tuesday’s close of 1.70 with the VIX still lower on the day. Overall put option volume remains muted with possibly around 5,000 lots trading across the board out of overall volume today of 71,000 contracts.
