Today’s tickers: GOOG, TIBX, AMD, HLTH, JPM, JDSU, EBAY, INTC, RHT, BEAS, TASR
GOOG – Investors were spooked by this morning’s tempestuous share price action in Google. With whipsaw action characterizing much of the day’s trading, Google shares opened around $640 before taking a $38 dive around 11 a.m. and retracing quickly, closing 3.2% lower at $617.25. This was still triple the decline on the Nasdaq Composite. The move was enough to send implied volatility 17.7% higher to 47.7%, which is 1.6 times the historic reading and the highest level on our books. Moving volume as of this dispatch is equivalent to nearly 1 of every 4 contracts in play. What’s more, most of this appears tied up in fresh volatility plays in the January contract, which is due to expire Friday, with buyers and sellers generating fresh volume in puts at strikes as low as 580 and up to 630, combining these with calls between strikes of 610 and 640 as traders brace for more manic share price action in the final days of the January contract.
TIBX – Options in Tibco Software traded at nearly 12 times the normal volume today as its shares closed 11% higher at $7.51. Tibco was the topic of takeover speculation in late-November, which was never resolved, and which may be a good part of the explanation behind the extremely elevated 60% implied volatility reading. Dashed expectations of a takeover bid may also explain the fact that Tibco’s densest option position by open interest is the January 10 call, which has twice as many open positions as the at-the-money January 7.50, and appears likely to expire worthless on Friday. Still, our attentions were seized by a a wave of fresh call buying in 7.50 calls at the August contract, which at $1.00 piece imply a move to $8.50 by late summer.
AMD – It stands to reason these days that bad news out of Intel is good news – or at least, a relief of its misery – for AMD. Indeed, as its chip rival-cum-overlord trades 12% lower this afternoon after yesterday’s earnings report missed the mark, AMD found itself trading 6.7% higher at $6.53 on the eve of its own earnings report. The price of the front-month, $6 straddle shows option traders anticipating a 14% price move on back of earnings. But with 2.6 calls moving for every put, and brisk buying interest in January calls at 6 and 7.50, many option traders may be betting that AMD has been through the worst of things and lived to tell the tale. We also observed very active call volume in the April contract, at strikes of 6, 7 and 8.
HLTH – Options in HLTH Corp., the company behind WebMD, are trading at more than 13 times the average level this afternoon, as its shares closed 2.7% lower at $11.93. For those keeping track, this is a new 52-week low. With put premiums gaining value on the share price decline, it appears that a trader closed out a position in the January 12 puts for $3.00. If the trader bought these contracts back in early September, when most of the open interest in this strike built up, he or she would have seen the investment more than double in value in the interim. It appears that the profits may have been reinvested in the April 12.50 straddle, which at $1.75 today would generate profit with a break above $14.25 or below $10.75.
JPM –Earlier this morning, the country’s third-largest bank, JPMorgan Chase, reported a 34% decline in fourth-quarter profits due to subprime mortgage exposure, higher loan loss provisions, and fewer revenues from its trading activities. CEO Jamie Dimon, who has enjoyed a good deal of positive buzz in the financial press as a kind of “honor scout” among big-bank CEO’s, was explicitly cautious in his outlook for 2008. While JPMorgan’s woes seemed to underscore some of the beleaguered sentiment behind yesterday’s selloff, investors appeared to take heart in the less-drastic size of JPMorgan’s write-down, its relatively strong business diversification, and the effectiveness of Dimon’s management. These factors sent shares in JPMorgan Chase 5.8% higher to $41.35. Its options were among the most actively traded on our platform today, with 187,000 options in play before noon trading more often to puts than to calls. Buying interest was observed earlier today in the at-the-money 40 strike in the January and February contracts, while calls at the higher 42.50 and 45 strikes in the February contract traded to sellers – perhaps evidence of traders being mindful not to cast JPMorgan as the Cinderella in a recession-tinged fairytale in which virtually every major bank is being cast as one of the homely stepsisters.
BEAS – Yesterday we noted an increase in option trading volume to more than 12 times the normal level in BEA Systems and a massive elevation in its implied volatility, on no apparent news catalyst. Lo and behold, earlier today it was announced that the company had at last accepted a buyout bid from Oracle, valuing the company at $19.37 per share. That’s still below the $21 sticker price that BEA Systems put on its hand in marriage months back, when news first broke of Oracle’s interest. Today its implied volatility receded dramatically, down more than 65% to read below 18%. Its options traded at 8.5 times the normal level as BEA shares closed 18.5% higher at $18.46. Traders didn’t venture much further afield than the at-the-money calls, however, with buyers still flocking to the January 17.50 calls, due to expire on Friday. Calls were bought at the same strike in the February 17.50 contract, with positioning in volatility-type plays or contrarian put activity conspicuous by its absence.
JDSU – Options in JDS Uniphase, the world’s leading vendor of broadband and fiberoptic equipment, traded at more than twice the normal volume today as its shares slid 3.4% lower to close at $10.95, a fresh 52-week low. A look at call volume showed these contracts trading at their heaviest volume since August, with traders buying the at-the-money February 11 calls but shorting calls at the March 13 strike for around $0.35. JDS Uniphase shares traded in a $4 range from $12 to $16, fairly consistently from June to December, before taking a 20% leg lower in the past month. Today’s volume suggests some expectation that the previous range may be cut in half, with shares remaining at current lows over the next month, not to exceed $13 in March. Added incentive for selling calls at that higher strike level may have come from the high implied volatility reading, which at 56% is sharply elevated about the 37% historic reading.
EBAY – Shares in online auction site eBay clung to a .36%.% advance to $28.05, bouncing off a fresh 52-week low earlier in the session. Grappling with fraud and security issues, as well as market share encroachment from Amazon.com, the company’s share price has declined 14% in value for the year-to-date. With its options ranking among the 20 most liquid tickers on our platform according to “Most Active by Option Volume,” we were struck by the degree of traffic in out-of-the-money puts. It appears that a trader may have closed out a position in January 25 puts for just a nickel this morning, and possibly reinvested the takeout price in February puts at the even lower strike of 22.50, which traded for $0.15 apiece. These contracts confer the right to sell eBay shares at a 19% discount to its 52-week low next month – possibly a very strong hint that at least some are expecting no great shakes from the company’s quarterly earnings report next Wednesday. Implied volatility at 51% certainly suggests some rough times ahead for the company, showing option premiums pricing in about 35% more share-price choppiness than eBay shares have shown historically. This escalating implied volatility trend has been in place since around the first of the month.
INTC – Intel shares declined more than 15% in extended trading yesterday, after the company’s sales growth fell short of street expectation, and issued guidance for Q1 of 2008 that seemed to confirm fears of softer demand for tech-sector stalwarts. Shares closed 12% lower this afternoon at $19.90. Days ago we noted what looked like a heavy degree of activity at the then-at-the-money $22.50 straddle, which at $1.61 was pricing in about a 7% for Intel shares by the end of trading Monday. Having captured that swing and then some, the price of the $22.50 straddle is now $2.46 – generating a $850 per-contract gain for anyone who bought the straddle two days ago and chose to cash out now. Today’s option battles are unfolding one strike lower, in puts and calls at the January 20 strike. We continue to see evidence of volatility positioning in the February contract, with buying and selling in straddle and strangle combinations with a strike floor as low as $17.50.
RHT – Options in open source software giant Red Hat attracted more than 16 times the normal level of volume today as its shares closed 3% lower at $18.68 – well within a dollar of the 52-week low set back on December 19. Our attentions were grabbed by fresh, conspicuous call activity in the June ’08 and January ’09 calls – calls outpacing puts in the volume stakes by some 30 to 1 today. These calls were bought at strikes of 20 and 22.50 in the June contract, while the January ’09 22.50 calls traded to the middle of the market at prices of $2.30 and $2.55. The premiums on these calls alone would imply a test of the current 52-week high by next January.
TASR – “Don’t tase me, bro!” That’s what we – and doubtless many other option-watchers – exclaimed upon observing an increase to twice the normal level of trading activity in Taser International. This maker of stun-guns, behind the bizarrely popular catch-phrase of 2007, raised eyebrows at last week’s CES conference by unveiling new models of its non-lethal (but apparently, very painful) weapons in fashion colors, along with a music playing holster. Shares in the company declined 4% today to $10.85. We were stunned – pardon the pun – to discover that much of today’s 21,000-strong option volume appeared in the January ’09 contract at the $10 line. Calls here were freshly bought for $3.90 in this time-value-rich position, while puts at the same strike traded freshly to the middle of the market at $2.30. We can’t conclude for sure but it may have been long straddle, a position costing more than half the current share price on a long-range bet that Taser shares will shoot up past $16.20 or backfire below $3.80. If that seems like a wild bet, consider that Taser shares have traded between $7.44 and $19.36 over the past 52 weeks. With 2.6 call positions open for every put, it looks like the immediate sentiment favors upside for Taser shares as the company tightens its grip on the market for…ahem…leopard-print stun guns.
