Today’s tickers: XLE, WB, MRVL, NUE, HSY, COF, F
XLE – Uneventful action in the share price of the Energy Select Sector SPDR today gave option traders the darkness of cover to seek sizable put-spread positions protecting against a new pullback in oil prices. The action here is noteworthy simply by dint of the size. First we observed a trader sell a 20,000 lot put spread in the August contract between strikes 70 and 75 – possibly the rollout of an existing position down into the September contract, where a long spread was deployed between strikes 65 and 71. Current premiums suggest that a long position would cost a total of $1.59 – requiring a break below $69.41 (5%) below current levels to break even – although the sale of the August spread might have mitigated the cost of the long September position somewhat. We were also informed of a sizable cash spread in the XLE involving some $2.875 million, a 5-leg trade in which the trader sold 5,000 August 70 puts, 10,000 September 70 puts, then bought 5,000 September 65 puts and a 20,000-lot December 60/69 put spread. Shares in the ETF are down .41% at $72.75.
WB – Shares in Wachovia are down 4% at $17.62 at this writing, vaguely outpacing declines in the broader financial sector. Option activity in the stock grabbed our attention initially for a 12.2% spike in implied volatility to 101% – bringing the implied volatility reading back over 100% after a few sessions’ reprieve. With puts outmoving calls by 3 to 1, the mood is prevailingly defensive, with heavy action in August 15 puts, as well as what may be traders selling the 10/20 October strangle and buying 17.50/10.00 put spreads in anticipation of shares remaining around current depressed levels through the autumn.
MRVL -Option traders appear to have trotted out old rumors of a takeover bid for chipmaker Marvell involving Texas Instruments. The strength of the scuttle send option implied volatility in Marvell Technology up 13% this morning to 54.6% – making it one of the day’s top implied volatility gainers –as call volume approached a two-month high, out-trading puts by more than 8 to 1 as shares showed a 3.6% uptick to $15.42. The action here appears consistent with a stock moving on takeover rumors, with heavy buying in front-month calls at the 15 and 17.50 strikes, extending into September and November at the 17.50 strikes as well.
HSY – – Brisk volume on takeover conjecture continues today in Hershey. Options are trading at more than 16 times the normal level, with calls outmoving puts by nearly 4 to 1 as shares trade flat at $40.25. Today’s volume shows traders positioning freshly in September 45 calls, which are already trading at more than twice the open interest, and where current premiums would put the share price within $1.50 of the 52-week high of $47.31 by mid-September. Implied volatility continues to loiter around those ultra-elevated levels of late Wednesday, coming in at 41.1% against a historic volatility reading of 25.9% on Hershey stock.
NUE – – Steel sector calls are trading with brio today as traders may be positioning speculatively in anticipation of a wave of industry consolidation. As a case in point we consider the action in steelmaker Nucor. Shares are up .51% at $53.98 and implied volatility at 51.8% comes in fully 20 percentage points below its mid-July highs, as well as the 70% historic reading on the stock. This kind of volatility setup should make option prices more affordable than they would be under higher-volatility conditions. What caught our attention was the preponderance of opening positions going on today in January ’09 call options involving far out-of-the-money strikes in seeming anticipation of volatile price movement in that month. At least one trader appeared to use a long collar to protect a underlying position in the stock, buying puts at the 40-strike for $2.05 and selling calls for $2.20 – taking a minimal credit on a transaction that would protect Nucor shares against an undue selloff. Action in the calls at strikes 60, 80 and 100 has volume reminiscent of butterfly spread activity, but we have no confirmation as to the order flow.
COF – Is a new wave of downside in store for Capital One Financial? Shares are showing a downtick of 3.5% to $43.09 but option traders are moving puts nearly 7 times as often as calls already on volume of more than 65,000 lots. This is occurring most frequently at the September 40 put strike, extending into December at strikes 35 and 40, where the similar volumes here suggest put spread activity in play. A long buyer of the 35/40 put spread would pay $1.65 on a transaction requiring a break below at least $38.35 (11% off current levels), while a seller would take that premium in the expectation of shares remaining above the $40 mark into year’s end. Capital One Financial shares have traded as low as $30.56 over the past 52 weeks.
F – Finally, moderately bullish share price action in carmaker Ford, coupled with an implied volatility reading that has contracted some 27% from its mid-July highs may have induced some traders to position long of volatility in the September contract. With shares up 1.6% at $5.02, earlier today we saw evidence of traders buying the September 5.00 straddle – a position that at $1.01 costs a full 20% of Ford’s current share price, but covers the buyer in the event of a break to the upside past $6.01 or down below $3.99 (34 cents below the 52-week low).
