Today’s tickers: MRVL, MSFT, VNDA, NVTL, XLF, RIMM, GM, ZLC
MRVL – One day after ebullient share price action and call-buying activity sparked talk of an imminent takeover or a buoyant earnings surprise, chipmaker Marvell Technology tacked on another 3% gain to $11.33 as the buyout scuttle continues to stick. Once again it’s the call traders in the catbird seat, with calls outmoving puts by nearly 10 to 1 in afternoon trading. While the brunt of yesterday’s volume involved buying in March 10 calls, today we’re seeing heavy traffic one strike higher at the March 12.50 mark, where the 45-cent premium has attracted buyers as well as sellers looking to take a 12% profit from yesterday’s levels. While this second day of gains makes it tempting to give credence to the takeover talk, the level of fresh selling in April 12.50 calls combined with selling in May 15 calls and buying in 12.50 puts suggests that the party in its share price may not last much longer.
NVTL – Shares in Novatel Wireless, the maker of wireless PC cards and multimedia application products for cell phones for both Verizon and Sprint, plummeted more than 23% today to $10.63 – a fresh 52-week low. Following this week’s moves by AT&T, Verizon and T-Mobile to offer fixed-rate monthly plans to consumers, Novatel issued Q1 guidance well below street expectations. Novatel executives said the initiatives by wireless service providers, believed by many to be the opening salvos in a cataclysmic price-war for the telecom industry, might carry “modest impact” as service providers seek to consolidate vendors. The guidance all but eclipsed higher Q4 earnings from the company. The news propelled option volume in Novatel to 8 times the daily average, as the value of the March 12.50 put ballooned some 200%. It’s here that the brunt of today’s volume is occurring, with the $2.00 premium attracting mostly sellers who may feel that the reaction to Novatel’s earnings was disproportionately bearish.
RIMM – Research in Motion was singing a different tune in the premarket, however. Shares in the Blackberry maker gained 9% to $107.04 after its Q4 new subscriber numbers bested the market’s consensus expectation by 20%. The news propelled options in RIMM to a volume of more than 83,000 lots in the first 90 minutes of the market, but the positioning here is surprisingly reticent- perhaps in light of the newly ambivalent outlook for the wireless telecom market – with puts outmoving calls by a factor of 1.3. It’s noteworthy that at least in the case of the March 106.625 puts, the positioning here was freshly bought, as traders may have been enticed by the 50% decline in premium to position for a quick retracement after today.
MSFT –This morning’s news that Microsoft was planning a non-Yahoo!-related major corporate announcement put a bee in the market’s bonnet early in the session. Shares surged 2.5% in early trading, eliciting a wave of call buying at the March 29 and 30 strikes, along with long positioning in the 30 straddle for $2.21. Come 11:30, the software giant announced new strides in allowing access to its API’s and other proprietary software blueprints for open-source programmers. Early gains quickly dissipated as traders grimaced at the whiff of the anticlimactic, and we’re presently seeing Microsoft shares trade flat at $28.24. The price of the March 30 straddle this morning would have necessitated a break to the upside of $32.21 or below $27.79 – a move that has yet to materialize. Interestingly, the price of the March 30 calls peaked in value at 55 cents this morning at 10.25, when the brunt of the buying took place. Premiums on the April 30 calls peaked at the same time at nearly double the price, eliciting a wave of selling in those calls as traders may have looked to fund exposure to front-month upside with the sale of the April contracts.
VNDA – Vanda Pharmaceuticals, the developer of drugs for sleep disorders and psychiatric conditions, marked the 1-year anniversary of its 52-week high with a 5.4% drop to $4.73. This latest leg lower, which did not appear to emanate from any single news catalyst, was the proverbial icing on the cake of a year in which Vanda shares surrendered 82% of their value since hitting $27.03 on February 2, 2007. The ensuing road has been littered with earnings misses over the past 2 quarters and development expenses tied to two drugs, one for schizophrenia and other for chronic insomnia, with data from clutch clinical trials due out this summer. The 6-fold increase in option volume we saw this morning, however, was centered in a short September call spread – which could well be a sign that option traders feel the only thing Vanda shares have left to give up is the ghost. Calls at the 2.50 strike were sold for $2.70, while the 10 strike may have been bought for $1.05, creating a bearish credit spread in which the maximum profit is realized with the $1.65 credit received at the initiation of the trade. Anxiety is high on Vanda shares right now, with the 94% implied volatility reading indicating that today’s option prices reflect about 18% more price risk over the next month than has already been made apparent in the share. The fact that option traders hold 3 times as many call positions as puts in Vanda Pharmaceuticals is perhaps a lesson to us all that hope springs eternal.
XLF – Is now the time to sell volatility in financials? Shares in the Financial Select Sector SPDR are down 1.37% to $26.73, roughly twice the decline in the S&P, and with 67,000 options trading as of the noon hour, it appears that much of today’s volume is involved in short straddle positions at the at-the-money 27 line. In this case, the trader would pocket the $2.25 premium as the maximum profit for the position in the expectation that shares will remain at or near current levels for the duration of the March contract. Elsewhere, we observed more than 10,000 lots trade at the bearish March 23 strike for a piddling 12 cents per contract – this contract having lost more than half of its value since we last observed five-figure volume at this strike last Tuesday.
GM –Shares in General Motors are down 5% this afternoon to $24.23 after reports that its Pontiac Vibe model sport wagon is one of two models under investigation by the National Highway Traffic Safety Administration, which received more than 500 consumer complaints over its power window design. This latest bruiser for GM follows news that it plans to shut down most of its North American auto-financing offices and cut staff at its partially owned GMAC lending division. The news appears to have elicited some contrarian plays from option traders, who went short March put spreads at the 20 and 25 strikes. In this case, the trader would have sold the 25 strike for $1.27 and bought the out-of-the-money 20 puts for 17 cents, with the $1.10 credit representing the maximum credit on the transaction as the trader hopes that both puts expire worthless with an upside move in GM shares.
ZLC – Zale Corp – A diamond is forever, but a put lasts only through expiration. After today’s reported 31% drop in quarterly profit for diamond retailer Zales, It looks like traders are looking to make that feeling last, if not forever, then certainly through May, via fresh long positioning in May 15 puts. The 3% decline in shares to $15.88 has erased some of the 15% recovery Zales has made since setting its 52-week low of $12.48 back in mid-January. Today’s active put contracts traded for $1.40 apiece, implying continued downside at least to within about a dollar of that low.
