Today’s tickers: MS, GS, GE, XLK, SGR & SNDA
MS – Morgan Stanley. – A tense weekend for shareholders of Morgan Stanley whose shares fell into the single digits having been as high as $69.02 last October. Shares are higher by 68% today at $16.22 following the long-awaited accord with Japan’s UFJ. The restructured deal gives the Japanese giant preferred stock yielding 10% rather than common stock – very Buffettesque. Option activity on the shares led the leader board for the most active individual equity contract, with buyers of October calls at the 17.5 and 20 strikes notable. The puts were traded evenly between buyers and sellers in October, while the November 30 strike calls where volume reached 9,641 lots, traded to the buy side at around 25 cents apiece. Implied volatility on the stock fell making it one of our largest decliners today as it dropped in half to 195%.
GS – Goldman Sachs – Shares at fellow investment banker, GS, are 18.5% higher today due to the better climate for banks following the concerted global recapitalization efforts. With shares now back above a psychological barrier at $105.20 today, puts options have seen noteworthy activity. At the 40 and 60 strikes in the October contract good two way activity has been noted and the November 125 puts have also been in action. Option implied volatility has slumped to 104% from 124% at the close of last week.
GE – General Electric. – The industrial conglomerate has completely missed out on today’s monumental relief rally and its shares are lower by 1.1% at $21.25. Evidence of bearish option positioning came from purchases of October and November 20 strike puts, but this was partially offset by the purchase of some 20,000 calls at the January 35 strike at 25 cents each. Option implied volatility on the security at 71% is sharply lower than Friday’s 94% reading and despite the fact that shares are failing to make headway today.
XLK – Technology Select Sector SPDR. – Some 13% of existing open interest is active in the tech fund today where option volume of 51,319 lots has traded ahead of noon. The fund is 6% higher at $16.85 and mirrors the performance of the tech sector. Around 73% of the open interest is found at the October 21 strike puts and there are no surprises to find that all of today’s action was located here. Some 55,000 contracts traded earlier at the strike – likely indicating an investor taking off established protection.
SGR – Shaw Group Inc. – Engineering firm, Shaw Group, saw it share price rally by 8.9% to $20.13 today. Meanwhile, option investors jumped to lock into the rally as they sold the October 20 strike calls in abundance. With only 50,682 lots of open interest, out scanners indicated red-hot action occurring here, where it appears that 13,132 lots were traded this morning at a premium of around 1.00. There are only 328 lots currently at play in this series but it appears that investors may feel that either the rally won’t last or that someone has bought underlying stock and is embellishing the yield with a covered call.
SNDA – Shanda Interactive Entertainment. – A 10% rise in its share price to $26.85 has helped create a noteworthy option strategy today. The size of the position at 7,000 at both November 20 strike puts and 35 strike calls compares to existing open interest across all options series of 66,009 contracts. The volume on the strategy exceeds the open interest at both strikes indicating fresh positioning. A strangle seller wants the underlying share price to remain within a range between the tow strikes. He has some leeway afforded by the premium received. The premium is made up in this case of the combined 85 cents on the calls and 80 cents on the puts for a total of 1.65. Add that value to the two extremes to show the range within which the seller wants the share price to remain ($18.35 – $36.65). Note that the share price topped out in the summer at just around $38 and declined more recently to a shade below $21.00. A strangle buyer requires a break outside of the ranges to make a profit in this case.
