Today’s tickers: F, SBUX, AAPL, TASR, IVN, ZMH, AMR, ABB & VIX
F– Ford Company– When there’s a recession a foot, it makes perfect sense to expect a slowdown in consumption, which is a roundabout way of arriving at the expectation of a quarterly loss for Ford Motors today. However, a 5 cent per share profit stunned analysts who’d anticipated a 16 cent loss. That news delighted investors and prompted a rally in the share price to a four-month high to $8.75. Options on Ford shares glow on our market scanner as one of the most active series in early trading with 203,000 contracts changing hands and with call volume exceeding put volume early on before some large put orders came in. The relief was evident in the loss of around one quarter in options implied volatility to read 47% from 62% heading in to the numbers. Heavy call volume today is to be found in the May contract at the 8.0 strike where investors are now paying a 0.47 premium indicating that the rally might just continue in coming sessions. In the June puts at the 6.0 and 7.0 strikes heavy respective volume of 47,000 and 21,000 lots have largely been bought at premiums of 0.08 and 0.17 per contract.
SBUX – Starbucks Corp. So the consumer hasn’t stopped buying Ford automobiles, but has stopped buying Starbucks coffee. Hmm. The jury’s out on Howard Schultz’s diagnosis over whether the weakening economy is curtailing demand for its beverages or whether it’s simply losing market share to the likes of McDonalds. An earnings warning after-hours on Wednesday accurately predicted significant weakness in Starbucks share price today where the $15.50 price reflects a 13.2% decline. Some 64,000 options contracts is skewed to the put side indicating a lack of confidence in Mr. Schultz’s assessment. The May contract is active at the 15, 16 and 17 strikes where combined volume of 15,000 lots stacks up against 16,000 existing open interest. Looks like investors are placing more bearish bets on further declines at your local coffee-house as shares breach a 52-week low.
AAPL – Apple Inc. There had been some fears for sales of iPhones, Mac notepads and iPods heading into last night’s earnings from the company. As such implied options volatility was high at 59%. The relief, while it hasn’t done much for Apple shares, which are up 2.7% at $167.29, is most noticeable in the 30% slide in volatility to 40%. That happens to be bang in line with the historical volatility reading on the share price. Looking at the closing price of the May 160 strike straddle ahead of earnings, investors were braced for a 20.20 shift in the share price. Today the loss of implied volatility has broken the back of that same straddle as a veil of uncertainty is lifted from the consumer outlook thanks to Apple’s revelations of full steam ahead for the consumer. The straddle today costs 14.30 indicating a likely range for the shares into expiration next month between $146.70 to $174.30.
TASR – Taser International investors were treated to a “self-shocking” today when earnings of 2 cents per share fell woefully short of the expected 5 cents per share, while revenues were also short of the mark. Options activity so far accounts for an equivalent 18% of existing open interest, as investors begin to sense that the company is running out of its charge. The at-the-money May 7.5 puts are trading actively at 0.50 premium largely to buyers who would break even if shares fell to $7.00. Although the June 10 calls are trading to both buyers and sellers, there’s a clear selling bias in the same September strike clearly predicting no respite for this company over the summer. Today Taser’s share price declined by 21% to $7.40.
IVN – Ivanhoe Mines Limited is a $3.7 billion capitalized non ferrous metals mining company involved in gold, silver, copper and other ore projects. Its share price advanced 2.8% today despite the impact of a reversal in the dollar and declines in the bullion prices of gold and silver. Surging options volume raised a red flag on our market scanner earlier today when fresh volume appeared in the January LEAPS contract at the 12.50 strike where some 20,865 contracts traded at 1.65. The volume accounts for more than one-in-five contracts of existing open interest in the company, while open interest at this specific strike is merely 5,720 lots. While we know that this is clearly a fresh position, we’re simply guessing that the trade is a fresh long given the fact that the share price jumped having been down on the day to being up on the day. Couple that with the fact that the premium paid was 0.15 higher than last night’s closer and it looks like there’s a keen option bull in action. Breakeven for a call buyer would be at $14.15 on the underlying share price at expiration.
ZMH – Zimmer Holdings. The artificial limb maker just about reached its earnings estimate this morning but clearly something rattled investors in today’s announcement. Investors took the impact of a share buyback pretty much as a knee to the groin. Thanks to a product recall Zimmer said it would attempt to replace lost income through the share drain and announced a $1.25 billion share buyback program. Of course maintaining its earnings outlook but using a smaller number of shares could be the catalyst for today’s 4% share price decline to $72.79. Whatever the bears took issue with it was enough to inspire options traders to put 17% of options open interest into play as 13,000 contracts changed hands where open interest totals just 73,589 overall. The options trading picture was muddied by sales of nearby May calls at the 70 strike at 2.90 while the 80 strike was bought at 0.10. If we’re reading this right, options positioning indicates that this disappointment will be short-lived and that shares will soon find their legs again. Such a trade is being placed at a net credit of 2.80 indicating a breakeven below $67.20 should Zimmer shares continue to decline.
AMR – American Airlines joined in a broad-based rally for airline stocks courtesy of a hefty slip in oil prices, which arguably takes some pressure off flight costs. Notable in options trading today as shares jumped 6.7% to $7.38 was a 10,000 contract purchase in the January ’09 series at the 7.5 strike at a premium of 2.30, which represents an overnight increase of 18% on the day. This is clearly fresh positioning given the existing 677 contracts of open interest at the strike and implies a breakeven figure of $9.80 for American at expiration.
ABB Ltd. (ADR) – An exceptional quarter for this Swedish engineering group saw its shares rally to a year-to-date high at $30.13 by lunchtime in New York. Options implied volatility performed as one would expect and continued to decline. That didn’t prevent a doubling in the premium on the May 30 strike to 1.10, while bullish option buyers extended duration through September with purchases of 3,167 lots at the same 30 strike at premiums of 2.80, which rallied 50% on the day. Options players also took advantage of declining put premiums in the September contract at the 25 strike where 1,880 lots went through at premiums 13% lower than prior to earnings at 1.00.
VIX – CBOE Volatility index. Despite early weakness in stock index futures today the market staged a late morning rally sending the S&P 500 index higher by 9 points or 0.7%. The VIX index dropped 4% in response at lunchtime with implied volatility declining to 19.36 percent in contrast to a first quarter average of 26.06%. The more sanguine outlook for the tumultuous credit markets has finally put a bid under equities. Dow Chemical’s CEO summed economic fear neatly when he divided the environment into world, U.S. and New York economies. His point was that the recession was largely confined to the big apple and beyond that, life was good. Today we’re seeing decent volume trading on the call side of the VIX options in the May contract where sellers are overwhelming buyers at the 22.5 and 25 strikes in search of stability ahead attached to lower market volatility.
