Today’s tickers: WFC, PG, CVH, ISIL, ILMN & RMBS
WFC – Wells Fargo – Shares are a little lower at $31.94 following results from Wachovia, which Wells is in the process of buying. The curious option activity was at the January 20 strike puts where investors added to existing open interest of 74,050 lots as they bought around 25,000 contracts for a premium of 1.0. This would seem to indicate that these investors are firmly expecting weakness at Wells Fargo looking forward. Today management noted that although the current environment is bad, it’s not as bad as the ‘80’s and that its customers are faring okay, other than its customers in residential mortgage and autos.
PG – Procter & Gamble – With a week to go before the consumer-products giant reports earnings we picked up some over-sized options activity today, which we’re struggling to make sense of. With shares trading 3% lower today at $61.04 two chunks of around 35,000 calls and puts were traded in the November contract. From time and sales we can see that at least 30,000 calls were sold for a nickel. Meanwhile the 35,000 puts were traded to mid-market prices obfuscating the investor’s intention here. A sale would have the investor short the 80 strike strangle at a gross premium of around 19.55. If that’s the case the hope is that shares will remain above $60.45 by expiration and will actually rally back to the 80.0 strike price where the investor would keep the premium. However, the puts might have been purchased with the investor simply buying stock and taking advantage of the nickel premium on the calls.
CVH – Coventry Health – rising health care costs and some bad investments folded profits at Coventry in half. Sadly, the same impact was felt on its share price, which today stands at $15.13. Option activity was far more brisk than usual at five times the daily average, but investors appeared more comfortable in selling puts. The November strikes at 12.5, 15, 17.5 and 25 all saw action apparently initiated by sellers. We can only deduce that they believe that today’s halving of Coventry’s market capitalization will prove to be short-lived. Activity at the January 35 strike calls was to the mid-market prices and so we can’t tell what investors’ motives were today.
ISIL – Intersil Corp. – Semiconductor-maker Intersil saw relatively heavy volume in its November and January calls at the 12.5 strike – its shares are running at the same price. Volume of more than 3,000 and 4,000 lots traded to mid-market prices respectively. With shares 1.5% lower today, the call premiums are down at 90cents and 1.05 each. In the far-dated contract, there is no existing open interest making this most likely an opening long.
ILMN – Illumina Inc. – This Life science group announced weaker earnings Tuesday and forecast a better close to the year. Our scanners have picked up out-of-the money call activity today at both November and January strikes, which is heavier than normal. Once again trade prices are masked by mid-market deals. Shares in the company are trading down 16% today at $27.00. Given the lack of open interest we wouldn’t be surprised to learn that these are fresh longs established by bullish investors.
RMBS – Rambus Inc. – Shares are 2% weaker at $8.25 and we’re curious to understand why investors have bought January calls at both 25 and 30 strikes on tech company Rambus. The last time its shares were trading above $20 was in June, while the last time they rose above $25 was in March and for two days only. The premium on each was 25 and 30 cents on volume of around 9,000 lots at each strike. Elsewhere investors traded 1,000 lots at the February 12 and 18 strikes at mid-market prices.
