Today’s tickers: CNI, LNG, SPWR, TLB, POT, BDK, CLR, MEOH
CNI– Speculation has risen in recent days following GE’s surprise earnings miss last Friday, that companies reliant on economic expansion – even those that continue to benefit from sky-high commodities prices – could be in for declines. It is against this backdrop that we observed a 21-fold increase in trading volume in the Canadian National Railway. It appears as though a trader may have taken advantage of the decline in put premiums resulting from today’s 6% share-price gain to $51.75 to enter a long position in the July 40/45 bear put spread. The prices on these positions today would result in an 85-cent debit for the buyer that breaks even at $44.15 – roughly a 13% drop from current levels. The maximum profit on this position is $4.15. .
LNG– Shares in Cheniere Energy, the operator of liquefied natural gas terminals, dropped more than 8% in early trading, setting the second in a consecutive series of 52-week lows at $13.00 . Earlier today Cheniere announced it was outsourcing the marketing of its Sabine Pass terminal in a bid to cut overhead costs. Implied volatility on its options rose more than 40% this morning, and it now appears that the option market is pricing in about 90% more volatility to its share price than is already apparent in its 76% historic volatility reading. The expectation for share price movement here seems way out of proportion with the known news flow. Given the volatility outlook, which is aberrant by any measure, it’s little surprise to see traders looking to sell premium in May puts at strikes of 10 and 12.50, with the inclination to sell pumped put premium extending into June at the 10.00 strike.
SPWR– Following a bumper quarter for solar energy companies, option traders are looking for a big move from SunPower Corp., the country’s second-largest maker of solar cells, which is due to report earnings tomorrow. A Bloomberg article appearing ahead of the numbers forecast a 14-cents-per shares rise in EPS, up from 2 cents one year ago, as the company has taken steps to hone the efficiency of its cells. Optimism ahead of the report appears to have fueled a 2% increase in its share price today to $96.31, and with the price of the front-month at-the-money straddle pricing in nearly a $10 move on back of the earnings, this is clearly a ticker to watch ahead of the trading tomorrow. More than twice as many calls are trading as puts in SunPower today, with keen buying interest not just at the April 95 call strike but as high as 105. The $1.40 price of that call position reflects a slightly less-than 1-in-4 chance that SunPower options can breach the $105 mark by Friday.
TLB– Shares in women’s clothier Talbot’s dropped an abysmal 30% today to $8.96, after announcing that HSBC Holdings and Bank of America were cancelling their letters of credit to the company. A rush to defense among option traders was apparent in the 45% spike in implied volatility to 145% – ranking Talbot’s among the biggest volatility gainers on our platform today. An 8-fold increase in option trading volume showed fresh buying in April 10 puts, which convey the right to sell Talbot’s shares for $10 on or before Friday. Buying interest in puts extended to strikes as low as $7.50 in the May contract. .
POT– Potash Corp of Saskatchewan – Shares in the world’s largest crop-nutrient producer rose 6.9% to $197.17, setting a new 52-week high on news that a Chinese potash importer had agreed to a tripling in the price of the agricultural nutrient. With implied volatility at 60.2% indicating that option traders see about 5% more risk to Potash Corp shares than they have shown historically, calls are outmoving puts by a factor of 1.6. Fresh volume has been observed in April 200 calls, trading mostly to buyers on a $1.45 premium that reflects a slightly better than 1-in-4 chance that Potash shares can break the $200 level by Friday. Elsewhere we observed heavy buying interest on both sides of the 195 line – it is not clear whether these positions are being bought together in a long-volatility straddle position.
BDK– Takeover chatter appears to be driving the volume in Black & Decker, which is due to report earnings on April 24. This isn’t the first time Black & Decker has been named somewhat opaquely as a takeover target, which could explain the relative lack of follow-through in its share price, up 1.6% to $67.76. At 43.4%, implied volatility in Black & Decker options is showing minimal movement – not typical for a stock moving on would-be takeover rumors. But options are trading at 10 times the normal level, with buying interest in April 65 and 70 calls – volume at the latter strike exceeding open interest – as some traders look to avail themselves of a quick pump in the share price ahead of Friday’s option expiration. Volume in the May 75 call, which corresponds to next week’s earnings announcement, is trading to buyers and sellers.
CLR– Shares in oil and gas explorer Continental Resources rose 1.7% to $42.28, setting a fresh 52-week high today. The company, which is most active in the Rocky Mountain, mid-continent and Gulf Coast regions, specializes in acquiring undeveloped acreage for use in future drilling operations. The five-fold increase in option volume we observed today showed interest at the May 45 call strike, with call-spreaders in force in the June contract between strikes 35 and 45. In this case the trader appears to have bought the deep-in-the-money 35 calls for $10.00 against the sale of the 45 calls for $3.00, creating a $7.00 debit and a breakeven of $42 for the position.
MEOH– Shares in Methanex, world’s largest methanol producer, declined .26% to $26.74 the current share price representing a 14% discount from the 52-week high. It’s a fair bet that today’s 13,000-plus lot volume in July 22.50 puts is fresh positioning, as the sheer size of the trade is nearly equal to the entire open interest in Methanex heading into today. A buyer of this position would pay $1.10 to protect against continued declines in Methanex’ share price by midsummer. Implied volatility rose more than 10% on the session.
