MNST – Job search and recruitment website Monster.com, long a squeaky cog on the buyout rumor wheel, appears to have jump-started the rumor circle again following news of an alliance with iHispano, a website for Hispanic and bilingual professionals. As shares in Monster.com staged an impressive 5% advance in afternoon trading to $27.11, its implied volatility surged 20% to 70%, making it one of the day’s top implied volatility gainers. Option activity gathered pace to more than 8 times the normal level, with heavy buying in March and April calls at the out-of-the-money 30 and 35 strikes. Volume in the April calls was more than double the open interest, as traders gleefully paid 200% higher premiums to lock in share price upside in Monster.com – a share that has traded as high as $50.28 over the past 52 weeks.
NTAP – Options in Network Appliance, the maker of network data storage and information management systems, have been all over the map in recent weeks – witness the events of last Monday, when vague analyst chatter sent overall option volume to 4 times the normal level as traders piled into April 22.50 calls. In the ensuing week, its implied volatility has lurched higher by one-third, and now reads 54%. Today, with shares posting a modest 2% gain to $22.99, traders once again bought heavily into April 22.50 calls at $1.85, combining them with the sale of calls one strike higher at the 25 mark for $0.85. It also appears that volatility plays are in favor in the June contract between strikes 20 and 22.50 – a buyer of this position pays a $4.15 premium (18% of the current share price) in the expectation of a move to the upside past $26.65 or to the downside below $15.85. A seller of this position would take in the premium in anticipation of very rangebound activity between those strike prices, essentially calling the market’s bluff given the very amorphousness of the recent share price appreciation.
HLS – Options in HealthSouth Corp posted 9 times the normal level of volume today on back of a 1% decline in its share price to $15.91. Shares in HealthSouth, which provides inpatient and outpatient rehabilitation services and long-term acute care nationwide, have given up 25% of their value for the year to date, and it looks like option traders aren’t looking for any rehabilitation in its share price for the second half of the year. As much as clear from the buying interest we observed in July 15 puts, which were bought on the offer for $1.55 today, implying a 9% drop below the 52-week low just to break even.
DVA – While shares in another health-care ticker, DaVita, the operator of kidney dialysis centers, mimicked the decline in HealthSouth with a 2.6% slide to $47.55, the 12-fold increase in option volume we’re seeing today may be due to a different protective strategy. It looks like traders may be putting on collars in the April contract at the 50 put and the 70 call, mindful of the beating the company’s shares took after an earnings miss last month, and protecting an underlying long position in the stock by buying the 50 put and selling the 70 call for a nickel, with that upper strike representing the level at which our trader would be happy to part with his or her DaVita shares.
XLF – Financial Select SPDR – Shares in the financial sector ETF reversed early piecemeal gains to close 1% lower at $25.08 following news that Ambac would seek to raise $1.5 billion through the sale of common stock in order to preserve its rating . Despite massive put volumes going through in the ETF for the week so far, we were interested to observe earlier today the inklings of upside exposure in the early market – even before trading on Ambac shares was halted. With more than 300,000 options trading as of noon, traders appeared to buy March calls at the 30 and 31 strikes – that latter strike attracting volume of some 40,000 lots despite the fact that its delta reflects just a 1% chance that the XLF can exceed $31 by expiration. On the put side, similar volumes at the two strikes suggest that bull spreads may be going through at strikes 24 and 28, with the trader buying the 24 strike for 43 cents in conjunction with the sale of the higher strike at $2.88. Put-buying at the 23 strike may be evidence of the trader looking to minimize risk from the upside bet in the higher-strike put spread.
TIBX – We’re not sure what’s stirring the pot of rumors in Tibco Software, the maker of business process management and integration software. But it was sufficient to drive implied volatility 12% higher overnight to more than 62% earlier today, as shares staged an impressive 7% advance to $7.53. Tibco shares have declined nearly 9% for the year-to-date, cancelling out a late-2007 uplift on takeover rumors. Interestingly, while Tibco calls are moving at their highest rate in about a month, sending overall option volume to 9 times the norm, today’s action is very localized in May $7.50 calls. These are being primarily bought at prices of 70 cents – up 50% from yesterday’s levels – implying another 11% in upside for Tibco shares by May that would erase the loss of the year to date, but still rate well below its 52-week high of $9.72. The fact that option traders hold about 4 times as many calls as puts in Tibco illustrates a high level of confidence in the company’s ability to turn the trend around.
PDLI – This morning’s admission from PDL Biopharma, which develops technology to aid treatments leukemia, cancer, and autoimmune diseases, that it had been unable to find a buyer, sent shares in the company on a 31% freefall to $10.87. Implied volatility spiked 25% on the news, and the 56% reading indicates more than 30% more price risk to PDL shares over the next month, making it one of the top volatility gainers of the early session. Put interest at the 10 strike has been clear in the March and April contract, and what appears to be volatility plays at the 12.50 straddle in the August contract. Heavy volume in the January ’09 contract appears to be selling of calls at the 20 strike and buying of puts at the 10 strike, in what may be a collar strategy designed to protect a long position in the underlying stock. The trader in this case is keenly aware of the possibility that PDL shares are in need of a protective put position as a bulwark against the company’s very uncertain prospects, and is happy to let the underlying shares go in the event that the 20 call is exercised in January.
ORCL – Oracle – Option volume in the world’s third-biggest software quickly accelerated to 1.5 times the normal level in early market action. This occurred as its shares gained 2% to read $18.80, after the company confirmed that it will unmask quarterly results on March 26, allaying some concerns that its numbers could fall short of guidance. While the upside share price action has sent the prices of calls higher, the directionality of the March trading is fairly restrained, with call and put spread activities showing a still-defensive posture for the front month, with more optimistic positioning in April Positioning in the April contract showed clear anticipation of a break of $20 on back of earnings, given the level of buying interest we observed in April 20 calls at 50 cents apiece. The price of this position reflects a better than 1-in-3 chance that Oracle can break the $20 mark – putting it within $3 of its 52-week high – on back of the earnings announcement. Volatility traders may be looking to pair this with long positions at the April 19 put in a strangle combination which for a total premium $1.50 generates profit for the trader with a break above $21.50 to the upside or below $17.50 to the downside.
XLK – Technology Select Sector SPDR – The generally positive tinge to the tech sector today patched through to action in the sector ETF. Options are currently trading at 10 times the normal level as the underlying share price gained .72% to $22.33. Today’s jump in option volume is due largely to activity in the June contract, where puts at the 21 strike were bought for 80 cents in conjunction with calls at the 24 strike, which traded to the middle of the market at 50 cents. This could indicate either a volatility-bullish strangle position or a cautiously bullish collar play. Shares in the ETF are down 16.3% for the year to date, having posted a more or less uninterrupted decline that began in earnest during the last week of December.
NUAN – Our market scanners detected a surge in option volume to more than 9 times the normal level in Nuance Communications Inc. Earlier this week the company announced a product upgrade to its PDF file-editing software. But this wasn’t enough to stanch a 1% decline in its share price today to $18.15 that induced option traders to unload March and April calls at the 20 strike despite sharply lower premiums at those strikes. Call open interest in Nuance has risen robustly and steadily for the year to date, and is now triple the open interest of puts.
DFS – Earlier today, credit card issuer Discover Financial Services said its survey of 15,000 adult consumers showed a steadying in consumer spending in the month of February, following dramatic cutbacks in spending in December and January. Shares in Discover closed .07% lower at $14.72, reversing early gains. While the results of the survey in large part simply bore out the obvious – that American consumers are skittish about the direction of the economy and tightening their belts – the fact that Discover options are trading at more than 10 times the normal level shows few traders looking to play on near-term price action and instead entering fresh positions in the January ’09 action. Puts at the 7.50 and 12.50 strikes appeared to sell freshly, possibly funding the purchase of 17.50 calls for $2.55 apiece.
