Today’s tickers: XHB, JCP, BJS, FDO, TGT, AIG, HOKU, DNA, TKC, FDG
XHB – For months now, the search for even meager signs of bullishness, of a “bottom,” if you like, to the ongoing woes in the homebuilding space has met with crickets chirping and the refrain of “A Cottage For Sale.” The fiercely defensive mood of option traders is apparent with a single glance at the ratio of open put to call positions in the homebuilders ETF, which shows bearish puts in the majority by a rousing factor of 1.4. Today’s unveiling of a politically-timed plan by the Bush Administration to freeze interest rates on some adjustable-rate subprime mortgages in a bid to forestall a wave of ruinous home foreclosures appears to have lent some support to the underlying share price in the ETF – and brought some bullish call buyers out of the woodwork! Against the backdrop of a 5.4% gain in share price to $19.82, the XHB is one of the afternoon’s most liquid option families according to our scanners, and thanks in large part to a wave of fresh long positions in the January 22 calls. These options, which were bought at around $0.60 apiece today – doubling in value compared to yesterday’s premiums – could imply some short-term stabilization for the ailing ETF, which broke below the $22 level the first week of November and hasn’t ventured that far north since. Implied volatility on the XHB currently reads 53.2% – a 9% gap above the historic reading currently on record.
JCP – A raft of sober sales data from mass-market retailers dented the market’s optimism over the perseverance of holiday season shoppers. JCPenney, the nation’s third-biggest department store chain, reported record sales during Black Friday and the subsequent post-Thanksgiving weekend. But its November sales numbers were otherwise weak, gapping below street estimates, and its share price lost 4.5% in short order. In general today, option traders have spent little time wagering contrarian bets on the prospects of mass market retailers, and that appears to be the case with JCPenney as well, given the fresh positioning we observed in the January 40 puts. As was the case with Target earlier this morning, the market’s initial reflex was to defend against a break below the recent 52-week lows resulting from lesser-than-expected holiday sales figures. Brisk volume in the January 50 calls attracted buyers and sellers even as these contracts lost nearly 47% of their value overnight.
BJS – Option volume in BJ Services, the oilfield pressure pump services provider, picked up to 8 times the norm against a near-3% gain in its share price to $24.88. We found little in the newsflow that might neatly explain such a significant leap in share price, though it’s notable that the fresh long positions entered in out-of-the-money calls at the January 27.50 strike and as high as 30 in the April contract was unaccompanied by a tick higher in implied volatility. The current share price represents just a 5% premium from the 52-week low, making today’s volume and positioning a resounding implication on the part of the market that its share price may have finally found a floor and bounced.
FDO – Shares in Family Dollar (FDO) lost 7.5% of their value to trade at $21.43 this afternoon, kith and kin with a downtrend for the broadline discount retailer. The company, which operates 6,000 stores nationwide, offering general merchandise to a mostly lower-income customer bracket, has underperformed the S&P by 33% this year, lagging its consumer discretionary index by nearly 17%. Earlier today, the company reported a decline in November same-store sales of some 3.4%, strongly rebuking the notion that broadmarket consumers feeling the squeeze of higher fuel and energy prices and declining home values might seek better price deals among discount retailers at the start the holiday season. Our market scanners seized upon Family Dollar thanks to a near 20-fold increase in option trading volume, which revealed traders seeking out fresh long positions in January 20 puts at about $1.00 apiece. The positioning here appears directionally bullish and deliberately chosen in anticipation of Family Dollar’s next quarterly earnings report on January 8. The retailer’s current 52-week low reads $21.03, but it is fairly apparent from today’s option action that a litany of traders are looking for a significant pull below that level heading into January. Implied volatility in Family Dollar options is sharply elevated at 50.8%.
TGT – Target – A similarly ominous December sales warning from quirky big-box retailer Target sent a 7.3% shiver coursing through its share price, which currently reads at $55.63. The immediate upshot for its options was an 8.6% increase in implied volatility to 45.8%, making it one of the day’s top implied vol gainers according to our scanners. A look at the active volume shows more than 71,000 options in play, with puts and calls trading at comparable volume. A 9,000-wide chunk of the active volume this morning appears tied up in out-of-the-money December puts at the 50 strike, which traded to buyers and sellers in a play on Target shares pulling below the current 52-week low.
AIG – Options in the country’s largest insurer, AIG, have been an extraordinary magnet for liquidity for two sessions running. Thus far today the company has tacked on a 4.5% gain for its share price, breaking the $60 mark to read $60.75 this afternoon. Shares in AIG advanced 4.7% yesterday as the company’s CEO went into tactical “credibility overdrive”in assuring investors that the company’s writedowns tied to U.S. subprime mortgages would be “manageable.” Yesterday we noted a lack of bullish strike price positioning in near-term contracts, with call buyers saving their brazen bets for the May 70 calls. But with analysts from leading investment banks now appearing to echo CEO Martin Sullivan’s sentiment that AIG’s losses would be limited, yesterday’s timid call buyers have emerged from the woodwork and let the $70 strike price sing. Calls at this strike in the February contract traded on a volume of nearly 16,000 lots, even though a look at the delta on this call indicates barely a 13% chance of such a price move by February. Similar positioning in the January contract, which traded to the middle of the market at $0.20, may be in combination with puts at the 55 strike which are trading for $1.32. A seller of this combination might be looking for rangebound activity between those two strikes, covering the trader in the event of a slipup in share price to the 55 level but putting a cap on the upside into January.
HOKU – Hawaiian-based Hoku Scientific Inc. has seen its shares rise sharply again today to $11.17. In mid-November shares had slumped to below $6.00. Options activity on this membrane electrode assembler jumped out on our scanners early this morning given the fact that contracts are changing hands at 3.5 times their normal pace. Current open interest in the options series is 32,023 and compares to total volume today of 18,954 lots. Two weeks ago the company announced a $308 million deal with Hong Kong-based Solarfun Power to deliver polysilicon over the eight year period starting mid-2009. Hoku is building a polysilicon manufacturing plant in Idaho, which when complete will produce 2,500 metric tons of polysilicon used in the power conversion process. Earlier this summer shares in Hoku traded as high as $14.00 per share. Options activity today has involved all three strikes from 10.0 to 15.0 in the December contract, which account for around half of overall volume. The picture is mixed with buyers and sellers getting involved. On the one hand, the expectation that shares will rise through $15 before expiration in two weeks time for a 32% increase might seem a tall order, yet on the other hand, the share price is close to having already doubled in the last couple of weeks. Today’s share price buoyancy follows a press release from the company confirming a Merrill Lynch funding commitment of $185 million for the new Idaho plant. The agreement is, however, subject to further due diligence by the investment bank. Implied volatility on options is extremely high at 133% and compares to a reading of 126% on the underlying shares due to its volatile recent past.
DNA – Genentech – Yesterday’s shock dropper, Genentech, is nursing just a .93% decline in share price to $66.15 this afternoon, which seems mild enough given yesterday’s volatile price action, and precipitous drop in share price for Roche, its holding company, in the European session. With more than 58,000 contracts in play this afternoon, Genentech remains one of the most liquid option families on our platform. Heavy volume is observed in the December 70 calls – those contracts bought yesterday at 4 times the open interest have lost 10% of their value, and are trading briskly to buyers and sellers this morning. Some of the buying pressure here may be the result of closing positions, or of traders seeking to play the volatility card with a tandem purchase of the December 60 puts. Calls at the 70 strike in the January contract sold off heavily this morning.
TKC – Turkcell Iletisim Hizmet ADR – American depositary receipts in the Istanbul-based mobile phone company known regionally as “Turkcell” advanced 2.7% in early trading to $29.71, this after Russia’s Altimo announced the sale of half its stake in the company in a bid to settle an ongoing dispute with Norwegian telecom giant Telenor in accordance with the ruling of a US arbitration court. Options on the ADR’s registered a 17.7% gain in implied volatility to 67.1%, while options are trading at nearly 3 times the average rate. This morning’s volume shows call trading in the ascendancy at the 30 strike in the December, January and April contracts.
FDG – Fording Canadian Coal Trust – Options in the world’s second-largest industrial coal producer traded at 4.5 times the average daily volume today on a 13% advance for its share price to $38.40, after the company announced that it has retained investment bank support to explore divesting some of its mine holdings or possibly merging with another company due to a pending change in the tax status of trusts in Canada in 2011. The news appears to have inspired a run on calls at the 40 strike, which attracted buyers in the December and January contracts.
