Today’s tickers: GOOG, CCK, GFIG, SLE, MSFT, C, OSK, KEY
GOOG– Last night’s bombshell earnings numbers gave the search colossus (and the market) a chance to preen today. Shares in Google are up 20% to $539.78. Dubbing the dynamic search engine an “active” ticker today is a marvel of understatement – the equivalent of some 83% of its open interest was in action today, with calls out-trading puts by a factor of 1.6. A few trades of note from Google’s always-liquid front-month options emerged in the wake of the numbers. Traders lucked out in seizing upon a price peak at the open to short April 520 puts for $3.50 before the price dwindled to naught by this afternoon. More than 30,000 lots traded at this strike this morning where open interest had totaled no more than 347 lots heading into today. Ditto the April 530 puts, which peaked in price at $8.00 at the open and eroded quickly from there. Heavy traffic in April calls was observed at strikes 530, 540 and 550, trading to buyers and sellers. There was ample reason for traders to sell premium in Google today on the final day of the April contract – for example, the value of the April 530 call is up 6000% from yesterday’s levels.
CCK– Shares in Crown Holdings, a leading producer of soda cans, rallied after the company reported solid Q1 profits, thanks to increased sales and its adeptness at passing on higher commodity costs to its customers. While investors applauded the report with a 3.2% gain that pushed Crown Holdings to a new 52-week high at $28.36, the six-fold increase in option trading volume appeared tied to even more bullish positioning in the October 30 calls. It was at this strike that we observed an 18,000-lot position – entered for $1.95, a brazenly upbeat position that supposes 13% more upside for Crown Holdings shares by October. Call open interest in Crown Holdings has risen appreciably this week, and option traders now hold 2.2 calls for every put in the company.
GFIG-Shares in interdealer brokerage GFI Group, the world’s largest such broker in credit derivatives, lost 23% of their value to close at $12.01. Earlier today it was confirmed that the company’s head of credit had left to join rival Cie. Financiere Tradition, eliciting concerns that the GFI Group could face an exodus of brokers to the rival company. Implied volatility on GFI Group options rose by nearly half to 115% – still gapping well below the historic volatility reading. An increase in option trading volume to 19 times the normal level appeared heavily concentrated in fresh purchases of April puts at strikes of 15 and 13.75. Put-buyers also congregated in the May contract at strikes as low as 12.50. GFI Group has traded as low as $12.25 over the past 52 weeks.
SLE– News from food maker Sara Lee that it planned to eliminate 1% of its work force to offset higher commodity costs had little impact on the company’s share price (shares closed down 1% to $14.10) but sent implied volatility on its options up more than 22% on Friday. The option market currently sees 39% more risk to Sara Lee shares over the coming month – a month that includes its earnings announcement on May 6 – than they have shown historically. Its options, meanwhile, are trading at more than double the normal level as some traders have taken a contrarian tack in trading news of Sara Lee’s strategic downsizing. They did this by buying May 15 calls for 25 cents apiece in anticipation of upside for the company’s share price in the coming weeks, perhaps due to confidence that Sara Lee will prove itself adroit as some other food makers have been at maneuvering a tough inflationary economic environment.
MSFT– Coming off a week of solid earnings reports from the tech space, shares in the software giant coasted 2.7% higher to $30.02 ahead of its own numbers next Thursday. Implied volatility is already showing a 28% elevation above the historic reading, but with twice as many calls trading as puts on a combined volume of more than 271,000 lots, it seems that option traders feel the pressure is on the upside rather than the down. Traders appeared willing to shed puts at the May 27 strike for 29 cents apiece, while buyers flocked to the 30 calls.
C– Citi shares were also amply rewarded by the market with a 4.3% gain to $25.06. This came after the largest U.S. bank reported a $16 billion writedown, but allayed investor concerns by announcing plans to cut 9,000 jobs. Credit-default swaps indexed to Citigroup debt dropped to a two-month low, and implied volatility on its options dropped 22 percentage points to 41.6%. Earlier today, option traders appeared keen to shed calls and puts at the May 25 line, though it is unclear whether the positions were sold together in the form of a short strangle. While the May contract shows little inclination among traders to position long volatility, we did observed buying interest in both June 27.50 calls and 25 puts. If bought together, this $2.40 position would generate profit for the buyer if Citi shares were to rise above $29.90 or below $22.60 by June.
OSK– Sweet relief for shares in truck maker OshKosh arrived in the form of a $69 million contract to provide 284 tactical vehicles to the U.S. Navy. News of the contract provided a 5.3% boon to OshKosh shares, rescuing them from the dregs of a 52-week low reached earlier this week. OshKosh shares have lost nearly a quarter of their value this year. The 8-fold increase in option trading volume detected by our market scanners this morning was centered confidently in long positions at the May 40 call line, where traders paid 50 cents for the right to buy OshKosh shares at a 7% premium to their current market value next month. The fact that implied volatility is elevated above the historic reading by more than a third is a clue that option traders feel the likelihood for a move of that magnitude is greater over the next month than it has been in the past.
KEY– Shares in KeyCorp, the country’s 16th largest bank, rebounded handily after yesterday’s reported 38% drop in quarterly earnings. Early-session gains in the stock rendered April calls at the 25 strike suddenly in-the-money, but the increase later cooled somewhat and KeyCorp shares ended the day 4.2% higher at $24.71. It’s not clear whether the buying interest we observed at that strike this morning was the result of fresh positioning, or a hasty closing purchase by a trader who had sold the position short previously – the cheap, 15-cent price tag on this call, which has virtually zero time value, could indicate either scenario. What we did observe, however, was fresh shorting of the same call strike in the May contract for $1.00, probably by a trader confident that today’s tailwinds won’t be a lasting phenomenon for KeyCorp. The current share price is nearly $11 off its 52-week high.
