Today’s tickers: XLF, USNA, CQB, PSS, SWY, GE, EWC, SOLF, AZO
XLF – Option activity in the financial sector ETF showed traders chastened into a bleakly sober view of the sector’s prospects into the New Year. A number of provocations may be blamed for this attitude, beginning with early comments from Citi’s head of U.S. markets and European banking, who told the U.K. Parliament’s Treasury Committee that Citi lost far more than it ever made from its subprime mortgage derivative products during all the years those products traded. Add to this the latest wave of downgrades in the brokerage space, plus comments from a US Treasury Official warning of a “resurgence in risk aversion” in the financial space heading into the New Year. Of today’s 487,585 active contracts in the XLF, 3.5 puts were trading for every call – of today’s total combined volume, nearly half (45%) was centered in January put at strikes no higher than 34 and as low as 26. Particularly noteworthy was fresh buying observed in the January 26 puts, with fresh longs once again entered in the March 24 puts. Call-side positioning in those months has been conspicuous by its absence. Taken together, this does little to disabuse the notion that the financial space is safely passed the recent asteroid field of potentially negative share price catalysts.
USNA – Shares in USANA Health Sciences, the Salt Lake City-based maker of diet and nutritional supplements, registered a 4.4% gain to $41.14 this afternoon on no apparent news catalyst. Our attentions were further piqued by an increase in option volume to more than 9 times the daily average, centered in what appears to be fresh straddle positioning involving 11,000 lots in the December contract at the out-of-the-money 50 strike. This same strike attracted similar positioning, albeit on a smaller, 2,000-lot volume, in the January contract. USANA Health has consistently traded below the $50 mark since mid July, having topped out for the year near $62 in early February. If our reading of the tape is correct and traders are indeed paying a combined premium of $10.10 – nearly 25% of the current share price – for an out-of-the-money straddle, then it’s a bold wager on turbulent share price movement ahead. Current implied volatility on USANA options reads 61.7%, compared to a 49.6% degree of volatility on record.
CQB – It’s been a slippery slope for Chiquita International, the banana producer and importer – a fact written all over its 53% implied volatility reading. Late last week, European Union trust-busters announced a series of raids on exotic fruit importers including Chiquita as part of a probe into alleged price-fixing activity on the European market. Today’s 8% boon for shares to $20.30 – on track for a new 52-week high – looks like the upshot of news that the company could benefit from a WTO ruling against EU banana import tariffs. Option traders, meanwhile, are taking the share price action with cool aplomb this afternoon, with most of the early volume caught up in fresh buying in February 17.50 puts – possibly indicating an expectation for Chiquita share prices to come off their current highs later this winter. This activity may be occurring as part of bear put spread activity involving the sale of puts at the February 15 strike. By buying the upper strike at $0.95 and writing the lower at $0.40, the trader opens the transaction with a debit in expectation of controlled downside price movement in the underlying price.
PSS – Our option scanners detected a 7-fold increase in option activity in Collective Brands, Inc., apparel retail company best known for its Payless ShoeSource chain of discount shoe stores, ahead of today’s Q3 earnings report. Collective Brands also owns shoe company Stride Ride, while its Collective Licensing International division controls youth/skateboard culture brands Airwalk, Vision Street Wear and Skate Attack. The campaign of acquisitions for the Topeka, Kansas-based company has left share-price attrition in its wake. Today’s closing price of $16.62 represented an 8% gain on the session, having set a fresh 52-week low earlier in the day as part of a 52% decline over the past year. The 20% hike in implied volatility our scanners detected at the start of the session is consistent with a company on the verge of earnings, and with the implied vol reading now approaching 80% it looks like option traders know full well that they’re dealing with a stock with plenty of room to move.
A look at the option positioning today suggests that option traders may be looking for Collective Brands to clear a collective hurdle, given the degree of buying we observed in December 15 calls at $1.40 apiece. Given current premiums, the shoe retailer’s share price would have to recover some 8% in the next two weeks just to break even. A look at the ratio of call to put open interest shows more than twice as many open call positions as puts, suggesting a high level of confidence that Payless’ parent can do just that.
SWY – Options in Safeway, the country’s third-largest grocery franchise, ticked our scanners after registering a fivefold increase in trading volume against a flat close for its share price to $34.43. Over the weekend the company announced a tentative agreement on a new four-year contract with some 25,000 organized California workers who had threatened to walk out over wage, medical benefit and pension concessions. With some 10,000 contracts circulating this afternoon, today’s option action featured prominently in January 35 calls, which fetched prices of $1.85 on the session – increasing more than 22% in price.
GE – General Electric – For a second consecutive session option traders have lent considerable liquidity to GE options, with more than 103,000 lots trading this afternoon as shares edged nearly 2% lower to $36.30. Calls narrowly outmoved puts for much of the session, thanks in large part to a midmarket transaction involving at-the-money 35 calls in the January ’09 contract. Front-month activity shows a substantial degree of buying interest in December 37.50 calls, though liquidity to in December 35 puts to buyers and sellers could be a sign of some strangle buying in anticipation of volatile price movements outside the range of those strike prices. In any event, implied volatility at nearly 29% reflects a near 18% premium – and thus a heightened perceived likelihood of share price turbulence – compared to GE’s historic performance.
EWC – iShares MSCI Canada ETF – This morning’s surprise BoC rate cut sent options in the Canada-indexed ETF to 20 times the average volume against a 1.2% decline in the value of its underlying share price to $31.20. Positioning in the December 31 calls earlier today was fresh and represented virtually all of the 18,000 option contracts trading this morning. The $0.90 premium represents a 28% discount from yesterday’s price levels yesterday. A look at overall open interest shows traders possibly looking for defensive/hedge positioning through the ETF, given that open put positions outnumber open calls by a factor of nearly 1.6.
SOLF – Solarfun Power Holdings – A charged undercurrent has surrounded options activity in a number of China-based solar cell manufacturers in recent weeks, making today’s pronounced action in photovoltaic cell maker Solarfun part of a decided trend, compounded by news of an investment by Good Energies. Options are moving at 5.6 times the average volume as its shares traded 28.5% higher at $26.48. This morning’s option action was characterized by call buying in the December contract at strikes 20 and 25, the latter on volume 4 times the open interest.
AZO – Autozone – Today’s kick-out-the-jams earnings mover basked in a 19% gain in share price to $128.80, with options trading at 5 times the average rate. A few notable points of positioning include what appeared to be bull put spread activity in the December contract between strikes 100 and 105. Call-buyers meanwhile, are also frequenting the December contract at strikes 120 and 125. All in all, the positioning favors continued upside for Autozone and an increasing level of confidence in the current share price level – given the near-20% drop in implied volatility.
