Today’s tickers: BAC, AAPL, GE, VIX, HA, AMT, BCO
BAC – Bank of America – A dividend cut has hurt shares at BAC today sending its shares lower by 15.2% to stand at $27.40. Its option volume is highlighted on our market scanner depicting it as one of the most active today with 235,000 contracts traded. With its shares heading to a two-week low, demand for protection from options has helped lift option implied volatility up 9% to stand at 98.5%.The October 25 strike puts were largely bought at a premium of 1.30 implying a breakeven value of $23.70 at expiration. Bearing in mind that the July low for the stock was set at $18.45, activity of put buying at the November 15 strike stands out today.
AAPL – Apple Inc – Options in Apple are active again but with little footprint left. Overall volume of 178,000 contracts included what appears to be a credit call spread at the January 150/170 strikes involving equal amounts of 10,000 lots. While the 150 strike traded to the middle of the market at 2.29, the 170 strike traded at a premium of 1.04 and were bought. With Apple shares trading at $95.17 (down 3%), this investor might be betting that shares won’t recover by more than 50% by expiration. So long as the stock remains below the lower strike on this combination, the investor retains the net credit of 1.25 per contract. On both of these out-of-the-money contracts the entire premium consists of only extrinsic value and its time value erodes by the day.
GE – General Electric – Shares of industrial conglomerate GE are higher by some 2.9% to $22.00 today, while implied volatility has contracted by 11% to 63.5% after shares reached rock-bottom on Monday at $19.72. Overall options volume of 89,000 lots ensures them a placing on the most active market scanner. Some optimism may have returned to equity traders but option investors were more cautious. They sold October calls at both the 20 and 22.5 strike while October 22 puts were bought.
VIX – CBOE Volatility index. – Options volume eased somewhat on VIX options today as equity indices stopped falling. The activity stood out in the October VIX options, where despite a decline of 9% in the underlying index to 47.36, premium on October calls rose. The reason behind the rise is due to the fact that the October future also rose to 37.70 (+0.9%). As we approach expiration on October 21, the futures get dragged closer to the underlying cash VIX index. It seems that option traders perhaps took advantage here and largely sold call options at the 30 and 40 strikes perhaps anticipating that yesterday’s big spike in the underlying will turn out to be as bad as it gets. Of course, traders also have time on their side, that is, assuming no major catastrophes in the very near future.
HA – Hawaiian Holdings Inc. – With its shares lower by 1.1% at $7.15 today it appears that an investor may have rolled a long call position down a strike in the April ’09 contract. Existing open interest was established one month ago at the April 10 call strike at a premium of 1.90 and it appears that this might have been sold at 65 cents in exchange for a similar volume play at the lower 7.5 strike at a premium of 1.36 today. At the lower strike today’s volume exceeds current open interest while implied volatility of 86.5% compares to an 80% reading on the underlying share price.
AMT – American Tower. – A slight recovery in its share price was accompanied by elevated option activity detailed today in our market scanners. With shares higher by 0.4% at $33.48 there were two chunks of put options in play today. In the October contract the 37.5 puts were sold 10,000 times at a premium of 3.80, while at the January 35 strike some 12,400 contracts were bought at 4.80. It could be the case that an investor is rolling his protection down the strike price and is prepared to pay a larger premium while likely locking into some profit on the open put position created while AMT shares slipped from $42.50 during the past eight weeks.
BCO – The Brinks Co. –. Shares are higher by 5% at this home security company at $53.55. A sizeable call spread has gone across the tape at a net debit of 8.10 per contract involving the November 45 and 60 strike calls. The lower calls were purchased and the upper strike sold. Should the shares breach the 60 strike at expiration, the investor is looking at the maximum gain as defined by the 15 point distance between the two strikes minus the cost of the trade.
