Today’s tickers: DAL, UAUA, CAL, NOK, YHOO, AKAM, TGT, WMT, COST, FINL
DAL – This afternoon the Wall Street Journal reported that Delta Airlines’ board of directors will be asked tomorrow to grant CEO Richard Andersen permission to proceed with M&A talks with both Northwest Airlines and United Airlines’ parent company UAL. Delta shares immediately shot 16.6% higher to $15.79 on the news, while implied volatility also jagged higher – having plateaued at an elevated 95% prior to Journal report as the market waited for the first inkling of real-deal talks, this measure of the market’s anticipation of future share price movement is now 103%, compared to a 79% historic reading. Delta’s 56,000-plus active option contracts make it one of the day’s stellar movers on our platform, with more than 6 times as many calls are in play as puts. January calls were heavily active this afternoon at the 12.50, 15 and 17.50 strikes, with many traders taking some profit off the table one week before expiration. Pressure in the February calls favored the buy side at strikes of 15 and 17.50. Earlier today, we also noted a move to sell March calls at the 15 strike sold off on volume of 10,600 lots, as some traders may be taking profit off the table after open interest at that strike swelled to five times its prior size, to 21,000-plus contracts this week alone. Despite a market that has been ambivalent about the outlook for airlines, a look at Delta’s open interest offers some perspective as to the degree to which traders might have been tipping Delta as “first-in, first-to-win” in the M&A stakes. Bullish call positions outnumber bearish puts 8 times over.
UAUA – Shares in United Airlines’ parent UAL Corp. rocketed 20% higher to $31.43 this afternoon, while option prices in the airline quickly recalibrated to reflect a 92% anticipated degree of share price movement in coming weeks, versus 72% historic volatility in its share price. Front-month trading favored long volatility positions in the 30/35 strangle combination. This $4 long position would be sought by a trader looking for United shares to wobble below $26 or above $39 in the space of the next week. Much of today’s volume appears lodged in put spreads in the March contract – up to now the suspected zeroing-in point for speculative M&A option trades in major airlines. These puts traded between the 25 and 30 strikes on volume ten times the prior open interest.
CAL – Speculation that a possible impasse with United and Northwest might bring Continental into the M&A fray sent implied volatility to a level 1.6 times its historic reading. Continental’s share price bounced 20.8% on euphoric tailwinds for the entire major airline complex – the current $22.66 price now representing a 30% premium on its 52-week low. Traders here appeared eager to buy January calls at the 22.50 and 25 strikes, expecting continued upside over the next week for this “dark horse” in the M&A stakes, despite no explicit rumor linking it to the first run of dealmaking.
NOK – Options on the American depositary receipts of Finnish mobile phone giant Nokia soared to 7.5 times the average volume today after the company reported that it may roll out 4 times the number of new phone models in North America that it normally does, in a bid to win more market share. Shares advanced 1.5% to $34.74, as traders sought to short February 35 puts at $2.10 and enter fresh longs at the same strike in the calls for $1.80. This net-debit position looks to capitalize upon share price appreciation for Nokia heading into February, with calls gaining in value and puts decreasing in value before expiry.
YHOO – On a different note, it appears that an article in this morning’s New York Post managed to do for Yahoo! what three days of gladhanding, jawboning, and showboating at the CES consumer electronics convention in Las Vegas could not – namely, send its share price higher. Yahoo! shares are up 6% this morning at $23.93 this afternoon, after an analyst note appeared in the New York Post putting the odds of a Microsoft takeover at 1-in-4. Despite the rally in share price, option traders earlier today looked askance at the odds of such a move, looking to buy puts at the January 22.50 strike on volume of more than 52,000 lots, while January calls at strikes of 25 and up traded to buyers and sellers as the value of these positions doubled overnight. Out-of-the-money call buying was in evidence further down the calendar, with long positions at the April 35 strike bought at less than a quarter apiece – this price, it should be said, reflects barely a 9% chance of Yahoo! besting its existing 52-week low by April. Also worthy of attention is the sustained, high level of volatility in Yahoo!, which at 58% is 1.6 times the historic reading. This dramatic divergence between historic and implied volatilities has been on the ticker since mid-December.
AKAM – Circulating rumors that content delivery provider Akamai’s 9-year relationship with Apple may have soured appears to be fueling a wave of speculative put buying in the company’s options, sending volume to 7 times the normal reading. Akamai shares are down 1.6% to read $28.76 this afternoon – having been down as much as 4% at noon. Implied volatility, which took off like a rocket from the start of the trading day to read 77.3% , has come off slightly to 70.3%, still elevated above a 44.9% historic reading. January 25 puts moved on a volume of 20,000 lots, trading primarily to buyers earlier today, along with puts at the 22.50 strike. These January options expire next Friday so a buyer of these out-of-the-money put strikes is expecting a pretty heavy downside move in the space of 1 week.
TGT – Shares and options in Target moved on a 2-for-1 news driver today, with last night’s news of the retirement of CEO Bob Ulrich stoking curiosity about his successor, Gregg Steinhafel. Earlier today, however, the company reported a bigger-than-expected decrease in December same-store sales and offered uninspiring guidance for Q4 sales. Shares in the quirky discount retailer are up 2.8% at $51.31 this afternoon, with more than 106,000 shares in play trading twice as often to calls as to puts. Early in the session, front month activity showed traders bailing out of call positions at strikes of 50, 52.50 and 55. Cautious bulls may have looked to call spreads in the April contract to express a view toward stabilization between strikes 55 and 57.50, looking for appreciation in Target’s share price above the $55 level come springtime, but capping any upside through the sale of a higher-priced call. Traders in this case may be exercising an extra dose of caution, watching to see how Target’s higher-priced consumer goods fare against Wal-Mart’s in a defensive, value-seeking consumer environment.
WMT – Better-than-expected December same-store sales from big-box chain Wal-Mart provided a measure of retail relief to the market in early trading, and comfort to investors who have sidled up to the company’s mix of consumer staple and lower-price discretionary goods as the country heads toward economic slowdown. Wal-Mart shares are up 2.6% at $48.08, with 93,000 active options, making it a heavily-trafficked one-stop Some traders took the opportunity to sell front-month volatility at the 47.50 straddle, pocketing the $1.60 premium in the belief that Wal-Mart shares won’t stray from current levels in the next week.
COST – It was a good day for the warehousers today, with Costco Wholesale Corp reporting a 7% rise in December same-store sales, beating street estimates, and sending shares 2.8% higher at $69.19. Earlier this week, the company’s CFO said Costco would follow through with expansion plans for the U.S. market despite a weak economic outlook for the country, leveraging its position as the country’s top warehouse club operator to broaden its selection of products. Options in Costco traded at 3 times the normal volume today, with traders apparently selling out of put positions at the January 67.50 and February 65 positions. Up to today, bearish put positions outnumbered calls by a factor of 1.2.
FINL – A share price for the disabled list…! Shares in Finish Line, the nationwide sportswear retailer, grabbed our attention due to a push in option volume to 7 times the normal level. This afternoon has shown its shares reverse early losses to trade 4% higher at $1.78, still the latest pit stop in a ruinous decline that began in January 2007 with shares at $14.75. Over the past 52 weeks the company has not just surrendered 87% of its market capitalization, but underperformed the S&P consumer discretionary index by more than 50%, and lost a court ruling ordering it to honor the terms of its buyout of shoe and hat maker Genesco. Despite some pretty dire odds, it would seem that some traders aren’t quite betting on the end of the line for Finish Line yet, given fresh call spread activity in the May contract between the 2.50 and 5.00 calls. This transaction, which involved some 25,400 lots at each strike, looks like a debit spread in which the higher-priced 5.00 calls were sold at $0.11 in tandem with the purchase of $2.50 calls at about 50 cents apiece. This implies a doubling in Finish Line’s badly-winded share price by spring training in May.
