Today’s tickers: ADS, HA, IKN, JNY, RIMM, KG, SHW, XLP, CFC
ADS – Alliance Data Systems, the Dallas-based manager of retail credit cards, ticked our data screens after options volume surged to more than 8 times the average level. This occurred even as shares traded flat on the session at $77.59. Yesterday the company’s share price faltered on rumors that Blackstone Group might seek a lower price on its $7.8 billion takeover agreement. Most of the options trading today were logged to the middle of the market, with December calls at strikes of 75 fetching $4.90. Calls at the 80 strike traded for $1.00, while put traders concentrated on strikes 65 and 70.
HA – Implied volatility in Hawaiian Holdings, the parent company behind Hawaiian Airlines, shot up nearly 72% this afternoon 91.5%, as its shares traded 2.2% higher at $5.05. Earlier this week the company went public with news of the largest single investment its history, purchase deals with Airbus and Rolls-Royce to replace and augment its 18-plane fleet with some 24 long-bodied aircraft. Options activity soared to 35 times the daily average on a combined volume of about 14,400 lots. This was seated in deep in-the-money 2.50 calls in the January and July contracts, with what appears to be an investor closing out at $2.65 a position in the January contract opened back in September at $1.80. The long position was then rolled to the July contract for about $3.20.
IKN – Options in Ikon Office Solutions are once again attracting an unusual level of attention from option traders, with contracts moving at more than 5 times the average volume as shares go nowhere at $12.60. The 10,600 options in play are equivalent to nearly a third of the total open interest, and are spread equally between puts and calls. On Wednesday, we noted heavy buying in the December 15 straddle, and it’s again at this strike where the option action is playing out today on volume of 5,300 lots at each side of the trade, both sides going to the middle of the market for a combined premium of $2.90.
JNY – We continue to monitor option action in Jones Apparel Group, the women’s shoe and apparel group behind brands including Nine West and Jones New York. Following the successful sale of its Barney’s chain of department stores earlier this year, the company is executing plans to phase out lower-margin sportswear divisions and last week announced plans to shut down its Anne Klein line. None of this appears to have placated option traders, emboldened in today’s session to sell calls at the December 20 strike. The activity has sent trading volume to 21 times the daily average. This is the highest level of call volume registered for Jones in more than a year, but the fact that they’re being sold can hardly come as consolation to hopeful bulls. The action occurred against the backdrop of a 1.4% gain for shares to $18.52. It is notable to see this level of short volume in calls – nearly 15,500 lots have traded at this strike today – without an attendant spike higher in implied volatility, but the 48.3% current reading is elevated by any standard. A look at overall open interest shows the number of open call positions dwarfing those of puts by a factor of 7 to 1.
RIMM – Blackberry maker RIM showed an uncharacteristic 7% decline this afternoon to $113.60, after an analyst downgrade cited concerns of a seasonally slower winter for PDA/handheld sales in North America. Of the 184,000 options trading, some 14,000 lots have traded in the December 120 calls – more than half of the open interest recorded in that strike prior to today. These contracts, currently fetching about $7.00 apiece, have depreciated in value some 27% today. Implied volatility on RIM options currently reads 78%.
KG – Foggy takeover chatter appeared inform much of the action in King Pharmaceuticals, leaving a dent in the implied volatility. Option traders’ anticipation of forward-looking turbulence in shares of the company, which makes prescription pain relievers including Avinza and Skelaxin, rose 39% on the session, and now reads 64.8%. Its options, meanwhile, are moving at 10 times the daily average. The nearly 10,000 contracts in play today match up against 20% of the total open interest. The surge in implied vol and call-side interest is some part consistent with the characteristics of a rumor-driven stock – especially the fresh buying we observed in December 12.50 calls, which are being snapped up at a quarter apiece. Interest in the 12.50 call strike extended to the January contract, where the same position can be acquired for $0.40 per contract today. We noted earlier that call traders had not sought exposure at strikes other than the 12.50 mark – noteworthy given that King has traded as high as $22.10 over the past year. Its stock price had depreciated some 25% in the two months leading up to its Q3 report earlier this month. And there’s virtually no move to sell put positions – also a hallmark of a stock basking in rumor momentum.
SHW – Maker of household paints Sherwin-Williams ticked our market scanners owing to a seven-fold rise in trading volume. Shares in the paint maker closed 1.9% higher at $62.83. No catalyst for the sudden spike in volume is readily apparent, but the 6,600 lots logged to the January 60 puts were fresh long positions, indicating a defensive posture on the part of investors expecting a return to the lows of early November.
XLP – Options in the Consumer Staples SPDR (XLP), whose components include defensive, consumer hard-times mainstays like Coca-Cola, Pepsi, Wal-Mart and Kraft Foods, have attracted 19 times the average interest today, as shares traded flat at $29.19. The liquidity we observed in the December puts this morning appeared fresh, showing evidence of bear put spread activity between the 28 and 29 puts. With this strategy, a trader would buy the 29 puts at a price per contract of $0.40 while simultaneously writing puts at the 28 strike at a price of $0.15, starting the trade at a debit of $0.25 for the trade in anticipation of a very modest decline in the value of the ETF.
CFC – Mortgage lender Countrywide Financial, whose share price has been in the direct line of fire of any and every news tidbit on the state of credit conditions in this country, surged more than 16% this afternoon to $10.83. The move came after news that the White House is in talks with a number of top banks on a plan to freeze resets on adjustable-rate mortgages held by subprime borrowers. Option traders responded with zeal, putting some 254,000 contracts in play. The volume bias of puts to calls is attributable in large part to heavy selling in January puts at the abysmal 7.50 strike. Liquidity in the December contract favored calls at the 10 and 12.50 strikes, which traded handily to buyers and sellers.
