Today’s tickers: AMZN, MCD, EL, CRME, VRX, CCK, CNO
AMZN – Citigroup’s forecast of better-than-expected sales of its e-book reader Kindle sent shares of Amazon.com on a 10% tear to $88.66 this morning. Option traders responded with a wave of giddy and fresh action in front-month options that are due to expire on Friday. Heavy two-way traffic was observed at the August 90 calls strike, while traders also positioned readily for and against a pull back below the $85 level by Friday with volume in excess of open interest at the 80 and 85 put strikes. The August straddle is priced to reflect about 5% of Amazon.com’s share price in play between now and Friday (half the move we’ve already seen today), making this a fertile hunting ground for volatility players today.
MCD – Shares in McDonald’s continue to showcase the fast food chain’s deftness in pulling cash-strapped consumers to its value-laden drive-thrus and takeout counters. Today’s modest .69% gain to $66.10 is keeping the company’s share price right around the 52-week high. But how much higher can those golden arches stretch…or are there signs already of (forgive us) a Grimace to the upside? Today we saw activity in the options market suggesting at least one trader willing to step up and wager on a limit to the upside. This was done via a 5,475-lot fresh call spread in the January ’09 contract, in which the trader appeared to buy the 65-strike and sell the 67.50 strike for a $1.10 debit that would have McDonald’s shares trading at or above current levels into January of ’09 – but not to breach the 67.50 strike.
EL – Option implied volatility in the Estee Lauder companies hiked nearly 20% higher this morning to read 43.8% (against a historic volatility reading of 31.4%), just three days before the cosmetics giant is due to report earnings. Shares are about 2% lower at $45.51 as we report an increase in options trading volume to nearly 16 times the normal level that has puts out-trading calls by more than 6 to 1. While early volume showed option traders favoring front-month puts at the 40 and 45 strikes, the buying interest has extended at these strikes on far heavier volumes in the September contract, which could suggest new tries at the 52-week low of $37.26 for Estee Lauder over the next month. Option traders already hold more than twice as many puts as calls in the cosmetics giant.
CRME – News this morning that the US FDA was requesting additional safety information from the company’s lead pipeline drug, arrhythmia treatment Kynapid, wiped out a month’s worth of gains in Cardiome Pharma. Shares are down 27% from Friday’s closing level to $8.73, and while its options volume has swelled to 9 times the normal level, there has been little to no patch-through in implied volatility. Most of the volume today appears in a 2,000-lot call spread between the September 10 and 12.50 strikes. We have no confirmation as to the direction of this trade, or if it were a closing transaction. Assuming the position were freshly opened, a buyer of the spread would have paid a 55-cent debit in the expectation that the FDA’s request for more info would amount to little more than a blip on the screen for Cardiome. A seller might take advantage of the 55-cent premium to wager on a struggle into the fall.
VRX – Shares in Valeant Pharmaceuticals, the maker of Kinerase anti-aging products and the migraine treatment Migranol, advanced 6% to read $19.31 over the noon hour, after reporting a loss for the year’s second quarter but disclosed revenues that came in above median analyst expectations. Valeant set its 52-week high of $18.47 last Thursday. Implied volatility at 45% continues to show an elevation above the 34% historic reading on the stock – a comparison of these two figures suggests that even with the numbers already out option traders continue to price in one-third additional risk than shares have shown historically. While options are trading at about 5 times the normal level today, much of this appears centered in a 2,000-lot short call spread between strikes 17.50 and 20. Here it looks as though the trader took a $1.55 credit, availing him- or herself of richer call-side premiums given today’s price action, and betting on a drop below the $17.50 level by mid-September.
CCK -Traders may be positioning for a break of multi-year highs in Crown Holdings, the maker of aluminum cans for soda. Shares are currently .07% lower at $26.65, about 80 cents off its 50-day moving price average. An increase in options trading volume to 7 times the normal level appeared in confident buying at the October 30 call line. Because the roughly 8,500-lot volume is within the existing level of open interest, we can’t confirm that this is opening positioning – but a fresh buyer of this strike would be looking for a break of the $30 line that would bring Crown Holdings past the 52-week high set back on July 21 and into multi-year highs. The 30-cent price tag on that option position reflects only about an 18% probability of that occurring. Crown Holdings shares currently trade at 8 times the company’s earnings.
CNO – – Conseco Inc – Shares are up 9% to $9.37 one day ahead of earnings, as options trading at more than 17 times the normal level due to some heavy and fresh call volume in the August contract at strikes 7.50 and 10. Implied volatility on all Conseco options is elevated at 75.5% versus a 53.4% historic reading on the stock – up 20% since Friday. Shares have lost 30% of their value so far this year.
