Today’s tickers: MGM, CMCSK, URBN, LUK, GYMB, & AMZN
MGM – MGM Mirage – Billionaire Kirk Kerkorian isn’t having much fun these days. Earlier this week he was forced to choose between his investment in the ailing auto industry through Ford and gaming interests in MGM Mirage. He said he sees more opportunity in gaming and leisure than in cars and as such is ditching his holdings in Ford to free up capital, which may well end up unwinding collateral used in MGM Mirage. Yesterday Fitch cut its ratings on some MGM obligations. Today, its shares are down 16% to $10.38 and option traders are piling on the pain. Our scanners indicate buyers of puts at the November 7.5 and 10 strikes at premiums of 90 cents and 1.84. In addition heavy call volume at the 12.5 strike exceeds currently open positions and appear to be largely instigated by sellers in clear expectation that the 1.20 premium received is sufficient to buffer against a snapback for the share price beyond $13.70. And with jet fuel demand running flat at the Las Vegas airport, party-goers are clearly tightening their belts.
CMCSK – Comcast – A 1% rise in shares to $13.98 at cable operator Comcast coincide with yesterday’s news about their roll out of even faster Internet connections to customers. For even faster connection business or personal customers can now pay for the privilege. Investors are responding positively to the news while one sizeable option play indicates that while the news might stop shares in Comcast from falling, they have initiated a play today that suggests that some uncertainty might dissipate from current events. With options implied volatility running at around 98% it appears that a strangle may have been sold at a net premium of 2.40 in the December contract. The strangle involved the sale of 15 strike calls and 12.5 strike puts and would make the seller profit if the share price at expiration remains within a boundary of $10.10 to $17.40. Shares have just rebounded from a $13.47 low. The historic volatility on the stock stands at around one half of that on the options.
URBN – Urban Outfitters – It’s no surprise to see retailing shares under pressure given the dire outlook for consumers over the holiday season. Whether the effective tax cut courtesy of cheaper gas prices will encourage consumption remains to be seen, but the unhealthy employment prospects just go on getting worse. Urban’s shares are not joining in the Thursday rally and stand 1.5% lower at $21.46. As recently as September they were trading within an ace of twice that price and earlier this month they stood above $25.00. In the January options contract we observed a decent amount of call activity at both the 25 and 30 strikes. We’re showing identical volume of 8,400 contracts at both, which we’d normally finger as a bull call spread. However, the 30 strike does appear to have been sold at a premium of 70 cents, while the 25 strike is trading to the mid. It’s unusual to see identical volume if the trade isn’t a spread. But if this is a credit spread the investor is betting that the shares don’t recover above $25.00 by expiration. This would seem to be a poor trade given the prospect of a 90 cent net credit if the investor is right versus a 4.10 loss should shares rebound to $30 or above.
LUK – Leucadia National Corp. – The company has a diversity of operations from manufacturing to lending and includes medical product development. We see no reason in the news that this company is on our market scanners today other than the 15.75% share price decline to $23.50 has created heavy demand for put options. In the November contract buyers paid 3.20 premium to secure the right to sell the shares at the 25 strike by expiration. Since these were bought the puts are deeper in the money and premiums are rising fast. In the January contract there was demand for around 1,000 puts at a premium of around 1.0 indicating that buyers see significant further downside in the stock. In both cases the positions initiated today far exceed the current open interest at the strike prices.
GYMB – Gymboree Inc. – Almost one quarter of the 29,668 options owned by investors in this shoe-retailer are in play today. Shares are suffering and have fallen 3.4% to $23.02. The November 30 strike puts have been sold 2,500 times at a rich 7.0 premium. This position might be closing since open interest at the series appears to have been initiated earlier in October. The position may have been rolled to the out-of-the-money 22.5 strike in December where over 5,000 lots traded at 2.90 to the mid-market.
AMZN – Amazon Inc. – Fears of a softening in winter demand and anecdotal evidence of weakening prices has left shares of Amazon in a tailspin – today they are 6% softer at $46.95. Options in the stock are one of today’s most actively traded tickers with total volume of around 75,000. Judging by the relative strength of volume compared to open interest in some put strikes, we’d say option investors are looking for a continued slide. For example in the November contract, at both the 35 and 40 strikes volume stands at around half of the open interest. At the 42.5 and 45 strikes volume is closing in on the amount of open positions. We doubt that investors are taking profit just yet with every sign of impending freeze for the economy rather than a thaw. Today’s put/call ratio of 1.6 confirms the excessive demand for puts.
