Today’s tickers: BEAV, NOC, MTW, INTC, CROX, CWTR, XLV, SOV
BEAV– Shares in the world’s largest maker of aircraft-cabin interiors have taken a hit in recent sessions, particularly in the run-up to yesterday’s Delta-Northwest merger announcement – as investors appeared swayed by the notion that a wave of consolidation in the airline industry would lead to a reduction in aircraft capacity. One analyst speaking with Bloomberg news yesterday noted that delays in Boeing’s 787 Dreamliner and a merging of Delta-Northwest’s aesthetic identity could compensate handsomely for any thinning of the post-merger aircraft ranks, on grounds that existing fleet aircraft would likely have to be “retrofitted” with new interiors. While the downside in B/E’s share price continued apace today, down 1.3% to $34.00, the nine-fold increase in option volume detected by our market scanners showed a remarkable propensity among traders for the call side of B/E’s outlook. April 30 calls sold off for around $3.80, while fresh positions were entered at the higher May 35 call strike for around $1.75. Despite the fact that shares in the company have lost more than a third of their value this year alone, option traders hold twice as many call positions as puts in B/E Aerospace.
NOC– Aerospace companies continued to make an impression on our market scanners, even Delta-Northwest news notwithstanding. Shares in Northrup Grumman, which recently pipped Boeing for a rich Pentagon defense contract, underwent a reversal of fortunes today, losing 6.5% of their value to read $71.80 – less than a buck above the 52-week low. The company is moving on a couple of conspicuously bearish news items this afternoon – first news that EADS, which partnered with Northrop Grumman to win the Air Force/Pentagon contract, is being invested by market regulators in France over suspected insider sales; and second, and more pertinently, the company’s own announcement that it may charge off as much as $360 million for the first quarter of the year due to delays on an amphibious assault ship. With options trading at nearly 10 times the normal level, traders sought fresh positions at the May 75 call strike, and again in the May 70 puts.
MTW– Shares in the Manitowoc Company, the country’s largest maker of ice machines, fell 9% to $36.05 after it announced plans to acquire British food service equipment maker Enodis PLC for $2.1 billion. The deal is part and parcel of Manitowoc’s strategy to make headway in the hot food service and food equipment markets. Implied volatility in Manitowoc options shows the market expecting a third more turbulence out of this stock that is already apparent in its 46.3% historic volatility reading. Implied volatility in Manitowoc options shows the market expecting a third more turbulence out of this stock that is already apparent in its 46.3% historic volatility reading, and with options trading at nearly 8 times the normal level, traders staked most traffic at the April 35 put strike. A decent outlook for stabilization and upside seemed apparent in the buying interest we observed in June 35 calls, whose $4.20 premium reflects a 61% chance of the position remaining in the money heading into the summer.
INTC– In recent days we’ve pointed to the persistent attraction of Intel calls despite a generally more ambivalent earnings outlook for bellwether stocks. In recent sessions, front-month options in Intel have priced in a possible 5% move on back of the earnings as option traders – emboldened by recent positive analyst attention – have shown a preference for call positions exposing them to upside movement in Intel’s share price. Today, the front month, at-the-money straddle is pricing in as much as a 7% move on back of the numbers. Implied volatility on all Intel options suggest a third more risk to the chip giant’s shares over the coming month. Hours ahead of the hotly-anticipated report, puts are outmoving calls by a moderate spread, due in large part to heavy two-way traffic at the April 20 put strike. Volume at this strike as of the noon hour already matches up to half the existing open interest at this strike. Higher-strike calls at the April 22.50 strike have been mostly sold today. Buying interest in May 21 puts contrasts sharply with a degree of bullish positioning in the May contract that we’ve observed in recent sessions. Shares closed .77% higher at $20.87.
CROX– For traders who have portended the waning appeal of synthetic clog maker Crocs, today’s lowering of the company’s Q1 forecast on lower sales simply states a truth long deferred for the trend shoe – namely, that Crocs are a fad and that fads tend to fall by the wayside. To be sure, there’s something about the immediate 43% drop in Crocs share price to $10.14 that smacks of a pent-up desire to sell the stock. Peril is written all over the elevated implied volatility reading in Crocs options, which shows a 28% higher risk premium being priced into Crocs shares over the next month than the historical record would otherwise justify. While fresh two-way traffic in April 10 puts suggests traders gaming either side of Crocs’ fate, the fact that April 12.50 calls were freshly shorted on a total volume of more than 6,000 lots suggests a measure of confidence that Crocs shares won’t manage even a feeble recovery from current depressed levels.
CWTR– We were flummoxed by a 64-fold increase in trading volume in Coldwater Creek centered roundly in puts despite a 3.3% gain for shares to $4.74. Implied volatility is ringing in at more than 80%. Puts are trading on their heaviest volume in at least a year, with the equivalent of nearly half its open interest tied up in fresh positioning in the July 5.0 puts and October 2.50 puts. Coldwater Creek is currently trading 82% below their 52-week high. Last week it was reported that Coldwater Creek registered negative EBITDA for the fourth quarter of the year, suggesting that the company’s expenses are outweighing its revenues. This would lend a degree of urgency to possible outside investment measures. Also last week, analysts speaking with Women’s Wear Daily pointed to Coldwater Creek as a possible target of hedge fund plays, noting that hedge funds are drawn to retailers due to sector’s quick responsiveness to economic turnarounds. Today’s trader doesn’t seem so confident that this’ll be the case, writing a put that would require him or her to buy Coldwater Creek stock for $5.00, and then securing the right to sell it for $2.50 in October. A look at the premium shows that the trader – assuming these transactions were connected – would still have taken a credit by selling 3,500 lots in the July puts for 1.00 piece, and buying 10,000 lots in the October 2.50 puts for 20 cents apiece, or a combined total of $2000. Up to today, option traders held almost 4 times as many calls as puts in Coldwater Creek.
XLV– Today’s bumper earnings report out of consumer health products giant Johnson & Johnson of a 40% increase in Q1 profits failed to patch through to share price action in the Health Care Select Sector, of which Johnson & Johnson is a component. Shares closed flat at $31.38 today, but ratio-put spreaders in the May contract sent overall volume to 7 times the normal level, amounting to almost 1 in every 4 existing contracts actively deployed. The spread in question here involved what may have been the purchase of 5,000 lots at the May 32 put strike for 90 cents apiece, funded by the sale of twice as many lots one strike lower at 50 cents per contract, yielding a 10-cent per-lot credit against the 5,000 lot long position for a trader looking for stable, rangebound activity for the health care sector ETF heading into next month.
SOV– Prolonging a trend we observed yesterday on back of a crushing earnings disappointment from super-regional bank Wachovia, implied volatility in mid-sized regional bank Sovereign Bancorp is showing an outsized elevation above the historic norm despite the fact that the bank has a week to go until its earnings numbers are out. This suggests that the fears of withering credit that investors have pegged to smaller regional banks are particularly high heading into this earnings cycle. With the implied reading on all Sovereign Bancorp options showing 15% additional price risk over the month to come, front-month options are pricing in as much as a $1.40 price move on back of next week’s earnings. That’s fully 17% of the current share price, which closed 3.7% higher at $8.44. Interestingly, option traders today put twice as many calls in play as puts, but are generally shunning the front month in favor of long positions at July 7.50 puts. The boost in call volume is due to a 2,000-lot call spread in the January ’09 contract, with the 12.50 calls bought for 40 cents, and the 15 calls sold for 20 cents.
