Today’s tickers: GRMN, DF, FDG, MSTR, NRG, GOOG, VIX
GRMN –Shares in Garmin Ltd closed 10% lower at $108.11 as the market reckons with the implications of the company’s $3.3 bn bid for Dutch digital mapmaker Tele Atlas. The offer trumped an initial bid from Tele Atlas’ Dutch peer TomTom. With 120,000 options in play Garmin was one of the day’s top performers by sheer volume – active contracts in play measure up to a third of its open interest, by our reckoning. A look at the volume distribution showed 2.56 calls moving for every put, and it appeared that option traders were rather more optimistic about the price outlook for Garmin, even with this bidding war thrown into the mix. We observed heavy buying in November 115 calls, trading at twice the existing open interest, a move implying upside price movement into November. These calls were offered at a 64% discount from yesterday given the precipitous drop in share price, which may be enticing Garmin bulls to enter fresh longs now. Garmin shares are down 10% from the 52-week high of $125.68 set one week ago today.
VIX – Unsurprising news was good news from the Fed today, with a 25 bp cut in the Fed funds rate meeting with broad market approval. The Volatility Index added to a pre-announcement pullback, resting at 18.53 for a 12% decline on the session. A look at the volume distribution earlier today showed what appeared to be buying and selling of call spreads in the November contract between the 25 and 35 strikes – this morning’s decline in call-side premiums making it cheaper to position in calls in anticipation of an pull ahead in volatility. More than a quarter of today’s volume in VIX options is tied up in those two calls, offering an interesting peek at how option traders view the prognosis for volatility in the next three weeks. The market did, however, manage to attract some plays on a “waning volatility” paradigm. Some 12,000 lots in the November 16 puts traded to the middle of the market at a quarter apiece. A look at the delta on these puts indicates that the option market is pricing in just a 14% chance of a drop below 16 in November.
NRG – NRG Energy – Bullish call-side plays have sent options volume in Texas’ second-largest power producer to 38 times the average volume, and with more than 311,000 options in play it was one of the day’s absolute most liquid series as well. Shares in the company closed flat at $45.66. More than a third of today’s volume was tied up in buying of the March 45 calls, while the January 35 calls traded to the middle of the market at $11.50 apiece. Last month the company submitted the first building application for a new nuclear power plant in some 30 years. According to the company’s filing with the Nuclear Regulatory Commission , the new plant is to be based in Southern Texas, powered with boiling water reactors from General Electric. The going price for those March 45 calls implies that traders are largely optimistic about the impact of the new plant on NRG’s share price, pricing in at least a 5% premium from the standing 52-week high by March.
DF –Something’s abuzz at Dean Foods, the maker of Land o’Lakes, Horizon Organic products and International Dairy coffee creamers…Shares nursed a 3% gain to $27.77 with about a week to go until earnings, sending option volume to 31 times the average, virtually all of it centered in calls. More than two-thirds of today’s active option volume was centered at the November 30 strike, with the market pricing in a one-in-four chance that Dean Foods can deliver on better earnings and price action into November. The current share price reflects a 14% improvement from its 52-week low. The company was also one of the top implied volatility gainers, according to our scanners, leaping 29.3% to 45.3% overnight – common for a company in the lead up to earnings.
FDG –Fording Canadian Coal Trust, the second-largest supplier of coal to steelmakers worldwide, weathered its biggest-ever decline in share price today after stunning the market with a 50% lower profit on declining coal prices and a strong Canadian dollar. Shares in US trading have shown signs of resilience, closing just .25% lower at $36.38. Its options moved at more than 7 times the average rate, according to our scanners. Today’s volume centered at the January 33.375 puts, which traded primarily to the bid at 4 times the existing open interest. A speculative move like this implies a trader taking advantage of short-term, exogenous effects on Fording’s earnings potential in hopes that the puts will decline in value as January approaches and Fording’s share price recuperates.
MSTR – Microstrategy Inc – It was a very good quarter for data-mining software maker Microstrategy, with all told a 14% increase in earnings for the quarter. Shares shot up 13% to $100 today on a bullish Q3 earnings report. Meanwhile, its options are trading at more than 7 and a half times the average volume. The more than 22,000 lots in play measure up to about half of the total open interest. It appears that the November 70 puts traded 3,000 times with premiums down more than 77% on the session, while additional liquidity was seen in the November 105 calls, which cost 550% more today than they did yesterday.
GOOG – Having well and truly breached the $700 mark shares in Google edged 1.7 % higher to close at $706.87, with nearly 150,000 options contracts in play. Twice as many calls were moving as puts, and rather than brash directional bets on the “How high can Google go?” stakes, it appears that many traders were content to take profit on previous long positions in the November 700 and 710 calls. A look at the increase in premiums and you can hardly blame them. A trader who bought the November $700 calls two days ago paid $7.50 for the privilege – those same calls can be sold today for $19.10, netting a tidy 162% profit for two days’ work. Ditto the 710 calls, which were selling for $4.50 two days ago and have appreciated to $14.40 today.
LNC – Shares in life insurance company Lincoln National took a 5.6% hit to $62.37 after the company reported Q3 earnings that missed analyst estimates. Options traded at around 8 times the average frequency according to our “Hot by Options Volume” scanner. It appears that traders took advantage of a 66% decline in the price of these contracts to enter fresh longs in the November 65 calls in anticipation of a speedy recovery in share price.
