Today’s tickers: MER, AIG, GE, GM, F, XLY, XLP, XME, HSY, MAR, HOLX, CMG
MER– Merrill Lynch shares are in the thick of things today with an 8.3% loss to $17.80 this morning, options volume in Merrill Lynch at upwards of 4742000 contracts has already exceeded ETF/index series. More than twice as many puts are trading as calls this afternoon with very fresh and heavy volume in ultra-low strike front-month puts at strikes 5.0, 7.50, 10, 12.50 and 15, all of which expire next week.. Implied volatility on all Merrill options is off its highs of the session, however, now reading 176% versus an earlier 214%, against a historic reading of 86.8%.
AIG– AIG shares are suffering from the same malignancy of sentiment today, dropping another 26% to $12.88 with about 278,000 options trading with a privilege to puts by a factor of 1.3. Implied volatility has risen more than any other ticker on our platform with today’s 52.3% increase to 252%. Front-month options indicate as much as a $4.33 move (29% of the current share price) to the up or downside over the next week. Besides extraordinarily high volume in September 10.00 puts, which have gained 622% in value overnight, fresh volume is showing up in the October 17 calls, where traders may be selling these calls in anticipation of continued share price doldrums. .
GE– We also continue to monitor unusual activity in shares of General Electric, where shares are off 5.3% at $26.67 in seeming defensiveness against the conglomerate’s financial sector exposures. GE implied volatility is up 31.2% to 50.7%, compared to 31.8% historic volatility on GE stock, handily setting a new high in the volatility reading as we observe heavy two-way traffic in front-month puts at strikes as low as 24. The December contract also continues to be a destination of interest for many traders, as a 10,000-lot long position was entered at the 22 put strike this morning at 49 cents per contract. We cannot confirm that this was done in combination with any other contracts, although a 5,000-lot position at the 26 strike did raise some suspicion that a trader may have been using a 2-by-1 put spread there.
GM– Automakers, however, are catching a rare break on the prospect of government-sponsored loans that could help the car companies avoid potentially ruinous liquidity problems. A spate of call buying amid palliative upside for both companies drove implied volatility readings higher, up 30.7% in the case of General Motors, whose shares are nursing an 8% gain to $13.77. At 124%, this composite volatility reading indicates the options market pricing in 46% more potential risk to GM shares over the next 30 days.
F– Implied volatility in Ford has largely shadowed developments in GM, albeit without quite the precipitous rise in today’s session. This week alone, the measure of perceived potential share price fluctuation is up 44% and now at 117% shows an added risk of share price movement of up to 83% more than is already charted in the stock being priced into calls and puts. Today’s action is overwhelmingly rooted in calls, outmoving puts by a factor of 2.4, with ready buying in September 5.0 strikes and buyers and sellers of October calls at strikes 5 and 6.
XLY– Shares in the Consumer Discretionary ETF, which is indexed to a basket of retail-exposed names including Home Depot, Amazon.com, Nike and Disney, are holding on to a slightly higher read, up .13% to $31.24, despite today’s surprise drop in retail sales. What appears to be the rollout of a 21,000-lot call position at the September 30 strike to the 32 strike in December appears to have sent option volume to 6 times the normal level.
XLP– Option activity in the Consumer Staples SPDR is showing up at 19 times the normal level as shares trade .21% lower at $29.03. Today’s activity includes what looks like a bear of spreads, with a trader selling the October 26/27 put spread for a 9-cent credit and possibly going long the 30/31 spread for 14 cents.
XME– Shares in the Metals and Mining ETF rose 6.5% to $59.07 as it appears that a trader may have used a protective collar to protect an underlying long position in a mining stock. This appears to have occurred in the October contract involving 49-strike puts and 61-strike calls, a combination that would allow the trader to buy puts and sell calls, taking a $1 credit on the trade and giving the trader immediate income as well as protection against a debacle in a long position on a stock.
HSY– Deal chatter also made an ignominious return to options in a number of companies that shown repeated susceptibility to rumors of this sort in recent months. Witness Hershey, whose options are trading at 13 times the normal level today – virtually all of it in calls – as shares read .79% higher at $40.87. In addition to buyers and sellers of September calls at strikes 40 and 45, the October 50 calls are attracting heavy traffic to buyers and sellers at around 40 cents apiece. Implied volatility at this strike comes in at 52.5% – a slight premium to the 51.5% reading on all Hershey options, which itself is a sizable elevation above the 41.6% historic reading on Hershey stock. A tasty volatility treat in this one today.
MAR– The resurgence of chronic takeover rumors also appeared to drive options volume in hotel chain Marriott to 6 times the normal level as shares showed a minor .27% gain to $29.26. Options activity is heavy in calls, with buying in the front month at strikes 30 and 32.50. Implied volatility at 53.4% compares to a historic reading of 44.3% on Marriott stock.
HOLX– Diffuse takeover chatter also tinted the option activity in Hologic Inc., the maker of digital imaging solutions for women’s health. With shares up 1.3% to $19.10, heavy demand for September 20 calls has driven options volume to 10 times the normal level. Open interest shows options traders already hold more than twice as many calls as puts in Hologic.
CMG– Casual dining chain Chipotle Mexican Grill was clobbered by options traders today after a profit warning sent shares down 17% to $59.23. Chipotle shares are down 60.8% so far this year. An increase in options trading volume to 2.5 times the normal level indicates heavy buying in September 55 puts, some buying interest in September 60 calls, and fresh volume in October 65 calls. Implied volatility at 61.7% is sharply elevated above the 47.4% historic reading and is a 19% increase from yesterday’s level.
