Today’s tickers: BCE, DE, BA, FLR, SGR & JPM
BCE – BCE Inc. – Accountants working behind the scenes at BCE told the management group behind the world’s biggest ever leveraged buyout proposal that post-buyout its debt level would fail to adequately meet solvency tests. Shares recoiled some 37% to $19.48. Options activity at BCE has appeared regularly on our market scanners during the past few days but largely due to call option activity. Today’s news hardly gave investors time to react and we’re seeing call activity once again in ascendancy in Wednesday’s session but at drastically reduced premiums. Out of overall volume of 3,156 contracts at the December 25 strike some 2,560 have so far been bought at around a 90 cent premium. Meanwhile investors have initiated more sales of 30 strike puts at around 9.90 than have been originated to buyers. In summary, the pattern is messy and in the heat of the moment option traders appear to be more willing to expect a rebound than a further drop in BCE shares. Right now that looks a confusing prospect.
DE – Deere & Co. – Revenues and costs rose hurting agricultural machine producer, Deere sending shares down almost 10% to $30.00. Option activity is relatively hectic as a result with 11,500 volume in early trading. Shares have performed badly on the back of weakness in related commodity markets and although implied volatility is lower post-earnings today, investors are positioning for a breach of the 52-week low at $28.55. December puts were sought in early activity with premiums of 85 cents paid by investors wanting to short the stock at the 25 strike. Meanwhile the sale of 22.5 puts against that position likely makes for a more efficient way of seeking a downside move at Deere.
BA – Boeing Co. – Shares in Boeing are unchanged at $40.14, while there is no apparent catalyst for elevated call activity in the December contract inferring a rise in the share price to $55.00 within weeks. Investors bought calls at the 50.0 and 55.0 strikes today on volume of 2,600 and 10,700 lots respectively. In the case of the latter we sense this is a fresh position since the existing open interest reads a mere 2,352 lots. Perhaps the comments from a German minister suggesting that European competitor, Airbus must face the reality of securing private rather than government capital. First, German government assistance is feeling the pinch from other perhaps more needy sectors, while in addition the minister acknowledged that Airbus must find a solution in accordance with WTO rules. Perhaps these investors feel that Boeing deserves to benefit from this environment.
FLR – Fluor Corp. – Recent earnings helped buoy shares at engineering contractor Fluor. Recent fiscal stimulus plans have raised the profile of the company, which is said to benefit from construction projects. Meanwhile the company acquired to European engineering companies recently helping to send shares higher by 11% to $43.43 today. We note a recent build in open interest in both the December 40 and 45 strikes and in today’s action about 2,000 more contracts have been snagged at a premium of 3.0. That ought to double the open interest on these calls overnight. Meanwhile a block of 40 strike puts traded to mid-market prices masking the investor’s intent.
SGR – Shaw Group Inc. – Option activity at engineering firm, Shaw Group indicates that an investor believes its shares will rebound from a recent $11.47 low. Today shares are 3.8% higher at $16.62 while April expiration option activity seems to indicate significant upside. We note 12.5 strike puts were sold 2,000 times at 2.0 while the 15.0/ 25.0 call spread appears to have been bought at 3.50. Netting the premiums would give a 1.50 cost in search of maximum upside of 8.50 should shares rise to $25.00 by expiration. Of course the trader does have significant downside exposure, but this play reminds us of the August 2002 NYC blackout when it became apparent that there was need for an overhaul of the national grid. Today, the buzz is that fiscal stimulus will once again stimulate those with greatest exposure to securing procurements.
JPM – JPMorgan Chase – Despite a further poor showing by shares down 1% at $29.44, an option trader sold 10,000 out-of-the-money puts at the December 17.5 strike for a premium of 50 cents. Negative comments from Oppenheimer analyst, Meredith Whitney to Bloomberg television stated that the Citi rescue would merely plug holes in its balance sheet for now. That has other financials on the back foot today. But for JPM, someone is perhaps trading options from a slightly more optimistic stand point.
