Today’s tickers: Today’s tickers: : VIX, RIO, C, XLF, STJ, SWY, EAT, PX & JBHT
VIX – CBOE Volatility index. – Options volume is pretty heady in the fear gauge today, which stands at elevated crash-time readings. You have to look back on a monthly or weekly chart to see levels above a reading of 50. Today the VIX is 18% higher at 53.28, which has seen the call side of the options market most heavily traded today. It looks like some profit taking may have been behind the 35 call strike where 23,000 out of the 25,700 lots traded was sold at the bid. Open interest here of 74,142 contracts has been declining over the last week indicating some bright investor may have reached their goal. At the October 37.5, 50 and 55 strikes more buying was evident as investors clamored for protection higher up the ladder. It appears that a long butterfly may have been traded at the December 30, 35 and 40 strikes judging by volume and time and sales readings. This may have been traded at a credit of 30 cents to the investor who now hopes that VIX index gravitates around a central point of 35 through expiration.
RIO – Cia Vale do Rio Doce ADR. – The flight to “quality” that is driving the American dollar higher took a fresh new breath of air today, with investors finally turning all out bearish on the euro as Europe grapples with something closer than the 10,000 feet birds-eye view of the banking crisis. As such commodity prices (except for the price of gold) are once again in freefall. As too is Vale’s share price – down 15% to $13.36 and well down from the one-year high close to $45.00. Options activity is busy, but on both sides of the fence. Call buyers were seen at the October, November and December 15 strike while some investors stretched fo put protection at the November 10 strike at a premium of 1.30.
C – Citigroup Inc – Option trading on Citigroup continued to be frenzied today. Whether or not Citi comes to an agreement with Wells Fargo on carving up the carcass of Wachovia Bank is immaterial as global indices plunge on a scale unseen since 1987. Shares in Citi are 9.7% down at $16.58 eliciting action at the out-of-the-money 20 strike in October where 16,000 out of 26,000 contracts in play today where sold at 70 cents premium. Meanwhile there was also keen buying of both October 15 and 20 strike puts at 1.0 and 4.10 respectively.
XLF – Financial Select Sector SPDR – Amazingly, with markets reaching fresh lows the XLF is not yet at a fresh 52-week low. In order to do so it still needs to take out the July 15 low at $16.79 at which point implied volatility stood at 68.4%. Today such options implied volatility reads 86%. Options volume of close to 200,000 ahead of noon shows keen call options buying in both October and November at strikes as high as 20, 22 (October) and 23. In the October contract at the 18 strike 11,000 puts were purchased out of overall volume of 18,000 this morning. At an approximate premium of 2.00.
STJ – St. Jude Medical Inc. – With its shares lower by 5.8% at $40.15 today there was still interest to buy October 40 strike calls in St. Jude at a premium of 1.70. There was also heavier volume on the put side at the 40 strike but this all traded to the middle of the market masking the intentions of the investor. The current open interest reading at the 40 puts is dwarfed by today’s 5,945 lot put volume indicating possible fresh positioning in favor of more downside in the stock. Implied volatility at 40% is not high in this climate in comparison to the 30% reading on the underlying shares.
SWY – Safeway Inc. – No one is getting away with hair-cuts to their share prices today including supermarket chain, Safeway, whose option volume is around six-times the daily average. It appears that despite surging implied volatility on its options at 75% today, an investor is still willing to bet on a further rise. Both the October 22.5 puts and the 25 calls were bought today indicating uncertainty over the future path of the share price, which is bordered by these strikes at $21.80 and down 3.3% so far today. The total premium paid of 2.25 infers breakeven prices for the buyer of this strangle strategy at $17.50 to the downside and $25.00 to the upside.
EAT – Brinker Intl Inc. – Restaurant-owner of Chili’s Grill and Romano’s Macaroni Grill is under the cosh today with shares 8.7% lower at $14.75. The common logic – not that any is needed in a market crash – is that with an economy in the grip of recession fewer people will eat out with their families. That thought possibly permeated the thoughts of an investor who sold January 20 strike calls in EAT at a 70 cent premium. While this could have been a closing sale against existing open interest of 2,311 lots, there was also decent activity in the October 17.5 and 20 strike puts. The overall 6,518 contracts at play compares to just 22,723 overall open interest in this series, while options volume was around 10-times the normal.
PX – Praxair Inc. – Oxygen and industrial gas maker, Praxair, was not in favor today and its shares declined by 6% to $68.44. Of note in its option trading was the purchase of 5,918 lots at the January 60 strike at a premium of 2.65. The position looks to be fresh since the volume exceeds the current open interest at the strike by twofold. Overall option volume on the series constitutes around 20% of total open interest.
JBHT – JB Hunt Transport Services Inc. – Option volume of 7,435 contracts was almost entirely made up of put transactions at this logistics provider. The pattern was not as dull, however, as it might seem. While the November 30 strike traded to the middle of the market masking the investors intention, the January 35 strike put was sold 3,550 times at a premium of 8.70. Finally the February 22.5 strike puts were purchased at 2.10. If the November contract was purchased, the investor is looking for upside potential from the stock, which is naturally being beaten up again today. Using the IB Risk Navigator, we can see that the investor would benefit from two things: A rising share price at JBHT plus a decrease in implied volatility. With shares at $26.90 the options carry implied volatility of 30% more at 80% than that displayed by the underlying share price (60%). The January 52-week low still holds at $22.98.
