Today’s tickers: HRB, STI, AN, LVS, CSCO, NWS, CVTX, BAC & WMT
HRB – H&R Block – Shares in tax-filer, H&R Block are weathering the storm well enough today and are lower by less than 1% at $18.20. Our market scanners have picked up notable activity in the January puts at both 10 and 15 strikes where some 15,000 lots have traded. Both amounts could reflect investors closing existing positions, which appears to be apparent at the 20 strike where some 5,000 lots have gone through to the bid. Again this might be substantiated by exiting positions evident at the strike. Earlier this year two blocks of 5,000 contracts reserving rights to sell shares at $20.00 in the company were purchased when shares were trading as high as $24.25. Premiums paid to secure those rights at the time were as low as 95 cents, which compares to 3.30 today.
STI – SunTrust Banks – With shares at southern retail banker, Suntrust, taking a beating today it’s trading at $37.03 . Option buyers lifted calls and puts at the January 2009 40 strike line indicating perhaps more volatility in the coming months. Shares are well off the 52-week low at $24.90 but perhaps investors have the thought in their minds that in such a weak climate, another swoon is possible. Implied volatility at 110% compares to 144% historic volatility on the underlying shares over the past year.
AN – Autonation – The Fort Lauderdale retailer of used cars did ever so well when the economy turned and the view was that consumers would turn their backs on new cars and plump for used ones. The company announced a $1.4 billion loss for the quarter and it’s clearer to everyone that consumers have simply stopped in their tracks – they are not buying anything. Shares, which have traded at $18.70 within the last 12 months are own 6.6% today at $5.69. Meanwhile our option scanners have picked up what looks like a clear contrarian play on the stock involving a 10,000 lot call spread in the December contract. An investor bought the 5.0 strike and sold the 10 strike for a net cost of 1.45, which is also the maximum loss no matter what happens to the share price. The investor stands to benefit to the maximum tune of 3.55 in the even that shares regain $10.00 by December’s expiration. With talk of possible loans to automakers, who says the writing is yet on the wall?
LVS – Las Vegas Sands Corp. – A distinct downturn in fortune today hit trading in casino and gaming resort stock LVS, whose share plunged 31% to $8.03. In an SEC filing the company forewarned its ability to continue as a going concern if it cannot raise fresh capital in order to help make existing loan payments. Option traders dived for protective cover and even locked into the right to sell the stock some 68% below its current share price at the November 2.5 strike by paying between 10-15 cents. At the higher 5.0 and 7.5 strikes speculators bought protection in excess of existing open interest. At the 7.50 strike investors bought enough options to cover the sale of 1 million LVS shares in the company. Implied volatility skyrocketed 35% to 265% as option traders tossed 51,000 contracts around, which represents 15% of overall open interest.
CSCO – Cisco Systems – It’s difficult to know precisely what to make of the activity in Cisco options today despite the company’s blunt forewarning that the credit-crunch will adversely impact current quarter orders. Shares reacted by falling 2.7% to $16.92 given the fact that many investors see Cisco as an economic barometer due to its dominance in router and switcher markets. The promise to cut operating costs by $1 billion over three quarters through hiring freezes and restricting employee travel doesn’t really register in the face of a potential 10% revenue decline. However, while the put/call ratio of 1.75 indicated almost twice as much put volume compared to call activity, we do note that several large chunks of puts were sold, which may represent investors booking profit on open positions. Large amounts of December contract 17 and 18 strike puts were sold, while in the nearby November contract, although there was active buying of 15 strike puts, those at the 18 strike were heavily sold.
NWS – NewsCorp. – An analysts downgrade cut the rating on the media giant from ‘overweight’ to ‘neutral’ helped sink shares by 15.8% to $8.24. The change of heart was due to fears of future profits. The early activity in NWS options was at the January 10 line where both calls and puts were bought. Some 1130 calls were bought at 65 cents and 2000 puts were bought at 1.0. The deeper in-the-money puts at the 12.5 strike were bought 732 times at 2.5 and clearly now contain 4.25 intrinsic value. The call buying looks curious since it was an opening position but might make more sense if combined with the long put position since this would make up a straddle combination looking for a burst outside the range of $8.35 and $11.65 ahead of expiration.
CVTX – CV Therapeutics Inc. – Buckling under the strain of yet another slide in equity markets, some investors will be pleased to learn that CVTX today won FDA approval for its one and only product line, Ranexa. That’s a drug to help treat chronic chest pain for anyone who can’t stand to watch markets move up and down more frequently than the elevators in the Empire State Building. The good news for the company helped rally the stock 9% to $10.58 and created fresh investor positioning in the December 12.5 strike calls. Some 2700 contracts traded at around 50 cents and from what we can tell half were sold and half traded to mid-market prices. The seller could have purchased stock and is trying to increase yield and is happy to set an exit price some 16% above where shares are currently trading or it could be that a speculator doubts the sustainability of the rally in the stock.
BAC – Bank of America – Some of yesterday’s market downturn was blamed on comments from bearish banking analyst, Meredith Whitney. She’s been spot-on with her desperate predictions and on CNBC ahead of the closing bell was in no mood to be fooled by the Super Tuesday rally. She is more bearish than ever, and thinks she’s under stating the case. The XLF financial sector SPDR is facing a 2.5% loss today. Meanwhile shares of BAC are 3.2% lower at $21.05 but options are again painting a mixed picture. Option implied volatility has risen 12% on BAC options today but we’ve noticed heavy selling in the nearby 20 strike puts where 10,000 lots have traded to the bid. Meanwhile on the call side in the December contract traders have paid 1.07 for rights to buy the shares at 25.0 by expiration.
WMT – WalMart – Heavy traffic in WalMart appears at the January 65 calls where an investor has sold 25,600 calls at a premium of 84 cents. The last time such a large block traded was on the first day of October when shares in WMT closed at $59.66. Since then they have declined almost 9% and it appears that today’s hearty volume might represent the closing sale against calls purchased at 2.15 at that time. Shares in WMT are higher by 0.7% today at $54.40.
