Today’s tickers: AMR, CQB, PBG, RIMM GE, GS, XLF, MEOH, WB, BAX, IVGN
AMR– Shares in American Airlines parent company AMR Corp rose 5% to $5.75, trending with other major airlines after a pullback from record crude oil levels, and following news that Chicago’s O’Hare International Airport intends to lift 4-year-old flight caps the fall – a move that an FAA spokesman said would give airlines greater flexibility in adjusting flight schedules to demand. American Airlines is one of the two biggest carriers servicing O’Hare. It may have been happenstance, but an immediate upshot was seen in naked call buying at the July 6.00 strike, with the $1 price tag on this position wagering on a 21% gain for American Airlines shares by July 18. We should note that implied volatility on all AMR Corp options is ticking in at its highest level in at least 52 weeks at 161% – suggesting that the options market expects even more turbulence from this low-flying airline by half over the next month.
CQB– Shares in Chiquita Brands International took a pratfall worthy of a wet banana today, down nearly 30% to $16.70 after forecasting a “significant loss” for Q3 due to higher input costs. On the options front, we observed an 8-fold increase in trading volume per our “Hot by Options Volume” scan, even as shares traded a full $3 below the lowest strike available in the June and July series. Instead, traders looked to August to put 17.50-strike puts in play on volume more than double the open interest. The price of this position swelled 700% to $2.00, implying a drop to $15.50 just to break even. Chiquita has traded as low as $13.31 over the past 52 weeks.
PBG– Option traders, it seems, are feeling decidedly un-cola. At any rate, it’s been a most un-effervescent couple of sessions for soft drink bottlers, ever since Coca Cola Hellenic Bottling slashed its full-year guidance on Friday due to high commodity costs and laggard economies in its key markets. Shares in Pepsi Bottling Group, the international distribution arm of the Pepsi group, quickly followed suit with a 4% drop to $29.45, setting a new 52-week low as option traders established fresh positions in September 30 calls in excess of Pepsi Bottling Group’s entire open interest. Implied volatility on all Pepsi Bottling Group options has doubled (and then some) over the past month, now ticking in at 40%, the highest reading on our books (dating back 52 weeks) and reflecting twice as much price risk to Pepsi Bottling Group shares over the next month than they have shown historically.
RIMM– Shares in Research in Motion rallied a pert 6.6% to $141.79 after Nokia launched two smartphones that the market was confident would not poach market share from Blackberry. The company also benefited from an analyst upgrade ahead of its earnings report next week. Implied volatility on all RIM options has shown a sure and steady incline since June 1, with option traders now looking for almost 50% additional price risk to the company’s shares over the next month. At least some of this move is likely to come before Friday’s expiration, with option traders pricing in $6 to the up or downside in RIM shares. With 152,000 options trading activity by late-session, bullish calls outnumbers puts by a factor of about 1.4, but we have noted hefty volume in the June 135 puts trading to buyers and sellers in excess of open interest, suggesting that some traders are positioning long volatility heading into this expiration week, or even wagering on a pullback from today’s enthusiastic rally.
GE-The drift higher in implied volatility and surge in defensive front-month position that we saw in GE options on Friday (following rumors of a capital-raising bid) continued apace today (following news of an analyst downgrade). Shares are down a restrained .34% to $29.05, but a look at implied volatility on all GE options shows the options market pricing in 77% additional perceived risk to GE’s share price over the next 30 days than they have shown historically. Earlier today we observed what looked like a 37,000-lot transaction in the front month where a trader sold calls at the 32.50 strike for a penny while buying the puts for $4.35. In the September contract, it looks like a long collar was deployed using 10,000 lots at the 25-strike puts for 73 cents, selling the 35-strike calls for 18 cents. Both cases are suggestive of traders rattled about the street buzz surrounding GE – talk that has patched through to GE’s implied volatility reading – and seeking to protect positions in GE stock using options as hedges.
GS– Goldman Sachs – – With Lehman’s in-line loss this morning restoring a sense of alignment (and therefore credibility) to investment bank guidance, option traders appear more willing to traffic in calls of Goldman Sachs and other on-deck earnings brokerages. Shares in Goldman are up 3.4% to $184.46, with some 1690,000 lots trading twice as often to calls as to puts. Most of this has been in front-month calls, with many strikes already trading in excess of open interest – to wit, the June 185 calls, which at $4.35 are worth 64% more than they were on Friday. Goldman shares are 1.5% higher at $180.90.
XLF – Shares are holding steady, up 1.2% to $23.66, with option traders closing out positions at the June 23 and 24 lines on hefty volumes. There’s still plenty of evidence of defensive sentiment in the sector ETF, as depicted by what looks like buying and selling at the 23-strike line in July, call-selling at the July 24 line, and buying in September puts at the 22-strike. Option traders are pricing in 52% added risk to financial issues over the next days, a fact which could add to the allure of cost-controlled strategies like put spreads in the coming sessions.
MEOH– Options in Methanex, the world’s largest supplier of the petrochemical methanol, are making their second appearance in 7 days on our scan of large volume gainers. One week ago today, we noted that a 27-fold increase in trading volume occurred in July 30-strike calls as shares appeared to make their fifth test of $30 since Halloween. Shares have been unable to pull off a close above $30 – but we should note that they are currently showing a 3% gain to $30.07, – and a 7-fold increase in option volume shows what may be traders taking off some of those 30-strike bets in the July contract for $1.40 today. Elsewhere, there’s heavy volume occurring in October 35 calls at $1.02 per contract – activity we’re chalking up to covered call writing, since Methanex shares have as yet not breached the $35 mark, options prices are reflecting barely a 30% chance of this occurring by October, and because today’s analyst upgrade of Methanex by Raymond James put the 12-month target at just $26.50 per share.
WB– On Friday we noted a steep increase in implied volatility of Wachovia options that coincided with a rash of out-of-the-money put volume following bearish stats on non-performing assets out of California lender Downey Financial. Today’s Wachovia shares are up 1% to $18.39, but its option activity continues to carry a pall. Implied volatility on all Wachovia options shows traders pricing in three-fourths added risk to the company’s shares over the next 30 days, and are expressing this view through bearish puts 4 to 1 over calls. The 13,000 lots purchased at the July 22.50 put strike earlier today may seem like no great shakes given the current share price, but realize that the $5 price tag on this position requires a break of $17.00 (Wachovia’s current 52-week low is $17.34) just to break even. Even bleaker is the positioning in October, with put buying at strikes 12.50, 15 and 17.50 on elevated premiums – nearly 20% of the active moving volume in Wachovia options is centered in puts that require a substantial break below $17 by October.
BAX– Shares in Baxter International, maker of the blood thinner heparin, are trading flat-to-higher at $62.00 in late afternoon trading. Today’s 4-fold increase in option volume shows up in the closeout of a strangle position at $1.00 that was opened back on June 6 for $1.15. The rest of the volume looks like straddle selling at the November 62.50 line, with the trader pocketing the $7.90 premium in hopes that time decay will do the rest – eroding the value of the position as Baxter shares remain at current levels heading into the fall.
IVGN– Options in Carlsbad, California-based Invitrogen have been active ever since last week’s announcement of its acquisition of Applied Biosystem Group in the hotly contested race for gene-sequencing. Shares are .63% higher at $38.46 at present, still lingering around the 52-week low, with today’s 7-fold increase in option trading volume matching up to nearly 1 out of every 3 options in play. This is heavily concentrated in the August contract, where it looks like there may be some short collar activity occurring between strikes 35 and 40. If this is the case, the trader in question is selling the 35-strike puts for $1.30 and buying 40-strike calls for $1.65 to protect a short position on the stock at a slight debit. Call volume at the August 42.50 strike is logged to the middle of the market.