Today’s tickers: TSO, QID, XRT, LLY, BAC, EK, NTAP
TSO– Call volume and volatility in oil refiner Tesoro shot sharply higher, one day after Bloomberg news revealed that insider buying in refinery stock had reached a 8-year high on speculation of an imminent pullback in oil prices – and perhaps goaded on by continuing revelations on Capitol Hill about the antagonistic effect of speculation on gas prices. It’s a pivotal debate to consider in light of the big oil refiners, which have suffered mightily under hefty margin pressures and spineless crack spreads for months. Shares in Tesoro are flat at $20.73 as we submit this report, having brushed a 52-week low earlier this morning, and it appears that some option traders have picked their moment to scoop up calls in the company. Calls at the July 22.50 strike, which convey the right to buy Tesoro shares at $22.50 by July 18, have been bought heavily at around $1.00 per contract, with volume already exceeding double the open interest. It is not known whether this is indeed an intrepid trader picking a moment to capitalize on a pullback in oil prices, or to hedge a short position in the stock. It should be noted here that buying pressure has, however, extended in this strike into the August contract. The volume here was accompanied by a 21% spike in implied volatility to nearly 80% (this has since eased off a bit), making it one of the top 50 implied volatility gainers on our platform this morning.
QID – Despite the prospect of a pullback in oil, there was plenty of other bearish stock for the market pot brewing today. Liverish consumer confidence figures, discouraging Case-Shiller home price data, and the specter of a potential double-digit drop in Q2 earnings for S&P earnings all portend ominously for stocks…factors which should send the value of the contrarian Ultrashort QQQ Proshares index higher. Shares are .50% higher at $42.095, and calls are outmoving puts by a factor of 3 to 1 on a sum volume of 15,500 lots. Today’s action, which rated among the top 50 movers heading into the noon hour, follows two consecutive sessions of 20,000-plus call volumes in the index, and today’s activity seems an extension of that sentiment. Calls at the July 46 strike were bought heavily earlier this morning on a volume some triple the open interest. It would seem that there’s plenty of headroom yet to clear for this contrarian index, which is trading about $15 off its March 17 levels.
XRT– There was nothing contrarian about the action we observed in the SPDR Retail ETF, a closed-end fund indexed to a basket of retail names including Gamestop, Tiffany, Walmart and CVS. With consumer confidence at a 16-year low and an unpromising outlook for Q2 earnings, the near 5-fold increase in option trading volume detected by our scanners today was squarely situated in puts, where a 15,000-lot glut of volume traded in front-month puts for $1.30 per contract. Some traders even saw fit to extend their bearish view into the holiday shopping season, buying 30-strike puts in the December contract for $3.10, indicating a near $2 erosion below the current 52-week low of $28.55.
LLY– Eli Lilly shares are down 2% at $46.59 after news of a delayed FDA ruling on Lilly’s anti-coagulant prasugrel, which is being positioned as a rival to Bristol-Myers Squibb drug Plavix, the industry standard. An immediate 6-fold in option trading volume followed with heavy selling pressure appearing in July 50 calls as well as the July 45 puts. Implied volatility on all Lilly options ticks in at 24.2%, elevated above the 19.9% historic reading but off the seven-month highs we observed a week ago.
EK– News of an imminent stock buyback program and $581 million tax refund that will positively tilt Q3 earnings sent shares in Eastman Kodak 14.7% higher to $14.15 by the noon hour, as option volume increased to 6.5 times daily average. Action so far is characterized by heavy buying in July 15 calls, which have traded nearly 14,000 times (exceeding open interest) and with the value of the position increasing 300%. Open interest heading into today had favored the calls by a factor of 1.3.
BAC– Bank of America shares turned tail by midday, trading 2.4% higher to $26.52, with some 95,000 active contracts trading evenly between puts and calls. Fresh volume was observed in July 20 calls earlier this morning, albeit pale in comparison to the rush to July 27.50 calls, which have traded 13.500 times. Similar volumes in the August contract at strikes 22.50 and 25 suggest possible put spread activity occurring there. Implied volatility on all Bank of America options has come off sharply in early afternoon action, now measuring below 60% after topping out near the 65% earlier today. This continues to show a heightened elevation against the 34.7% historic reading.
NTAP– NetApp Inc – Shares are up .44% at $22.98, with total option volume of 15,000 lots qualifying the tech ticker earlier in the day most active option families. The volume here looks like a fresh collar in the January contract, with a trader buying 22.50 puts for $2.65 against the sale of 30-strike calls for 75 cents, entering the trade at a debit of 1.90 to protect a long position in NetApp stock against new year declines.
