Today’s tickers: RIMM, BP, NXY, MMM, USB, WFC, GS & GE
RIMM – Research in Motion – Terrible results from fellow-handset maker, Palm clouded the prospects for RIMM as well as the mobile phone industry sending shares of the Canadian manufacturer of the Blackberry device 7% lower to $37.02. The company recently faced delays in shipping its novel Blackberry Storm, but news that Palm recorded revenues of $190 million from sales of its seven-year old Treo and 2007 Centro devices rather than meeting expectations of $331.8 million deterred investors. Industry analyst, Gartner Inc. recently forecast 2009 handset sales might decline for the first year since 2001. Meanwhile, Finland’s Nokia announced the 2009 launch of its latest challenge to RIMM and Apple, maker of the iPhone, with its N97, which will feature a touch-screen and full keyboard. Even at $697 analysts expect consumers to buy from Nokia, which is expected to supply around one quarter of the four billion handset market in 2009. Option implied volatility resumed its upward trajectory with RIMM marking a fresh 52-week low on the day. Demand for December 30, 35 and 40 puts was seen while we also note active selling of call options at the 35 and 40 strikes.
BP – BP PLC – ADRs – Comments from a company spokesman today warned that the recession could help depress crude oil prices for as long as the next couple of years. However, the company has set a priority on maintaining its dividend and will cut capital expenditure if necessary as a safeguard. It has no plans to ease back capex at this time. One investor liked this news and with shares higher by 5.4% today at $45.90 bought a bullish call spread expiring in April. The trade involved the purchase of 10,000 calls at the 50 strike while an identical amount of calls at the 60 strike were sold for a net cost to the investor of 2.95. The best news for this position would occur if BP’s share price rose to the upper strike during this time frame. That would leave the position worth a net 7.05 per contract.
NXY – Nexen Inc. – The Financial Times, Alphaville column broke the story that Canadian independent oil and gas producer, Nexen is being approached by France’s Total in a bid to buy the stock at around $30 per share. The company wants to remain independent but apparently its board’s mettle will be tested by the price and the report that Total has already secured financing and will sell a Sanofi Aventis stake to boost its chances of success. Shares are 15% higher at $20.40 will investors have been quick to boost interest through Nexen options. Currently established positions amount to around 69,000 contracts while today’s volume of 26,721 represents around 38% of that number. The option picture is mixed with a real division here. Earlier call buying at the 15 and 17.5 strikes in the December contract soon became too expensive and has graduated to the 25 and 30 strikes. Meanwhile, the doubting Thomases appear to be stacking up put positions at the 15 and 17.5 strikes in the event that the board’s resolve to remain independent is stiffened by the assault.
MMM – 3M Company – We noted hefty option volume in the December contract following confirmed recession and its one-year anniversary marked by a seriously weakening ISM report. Usually, by the time recession is confirmed investors are accustomed to discounting better times ahead. The demise of the global economy on this occasion has created a deeper problem and one that now sends further bad news across the bows of 3M. The resilience of the dollar, which in part is acting as a safe haven currency, is set to hurt earnings at the company. In 2007 some two-thirds of sales of $24.5 billion were originated from outside the US. According to one analyst who today turned his stance from ‘neutral’ to ‘sell’, that’s enough to cause headwinds for 2009 earnings. Option traders doubled their bearish positions in the December contract as they bought more put options at the 65 strike. Lower down they also bought 60 and 55 strike puts. Shares in 3M slipped 2% to $61.05.
USB – US Bancorp – Shares in Midwestern financial services company were a little higher today at $24.24 – up 2.2% – perhaps on news that its loan portfolio is actually expanding. Outstanding loans for the first three-quarters of the year are up 35%. Option traders bucked the rally in the stock and placed bearish bets that its shares would fall by January as they added fresh put positions at strikes ranging from 17.5 to 22.5.
WFC – Wells Fargo & Co. – Despite a similar rally for Wells Fargo’s share price to $23.99 option investors seem to be taking their cue from comments made earlier in the week when Oppenheimer banking analyst, Meredith Whitney noted the bank was her ‘biggest sell,’ according to a Bloomberg News report. There was considerable interest in the December 20 strike puts where around 13,000 contracts are in play with exactly half trading to mid-market prices at a 1.65 premium. That would allow buyers insurance on a share price decline below $18.35. More put buying was concentrated at the same expiration at the 23 strike where some 6,300 contracts traded at premiums between 2.50 to 2.70. Calls at the December 25 strike appear to have been sold today, but we should also note there is similar volume at higher strike calls at the 28 and 30 levels, which helps balance the investment landscape.
GS – Goldman Sachs – There appears to have been a decent interest in buying puts at the December 65 strike on shares in investment banker Goldman Sachs as its share price fell 2% to $64.28. Investors have been pounding the stock recently as more analysts slash estimates for earnings citing dropping demand for investment banking services and fee income from asset management services. One analyst today notes that GS is likely to suffer from a lower return on equity (ROE) due to the likelihood that government measures attached to the financial rescue package will require lower leverage and more conservative risk positions for a ‘new’ Goldman Sachs. Formerly the company would lever its assets to shareholder equity perhaps 30-times, but the new-thinking is that such days are over. Another analyst today revealed his prediction of a fourth quarter loss of $2.65 billion. It wasn’t many weeks ago that a profit was predicted by those who know better than us. The premium cost of a December 65 strike put will set you back 8.50 where some 6,000 lots have traded today. At the 60 strike around 4,000 lots are in play where downside protection commands a premium of 6.40. With implied volatility surrounding GS running at a rampant 133% the cost of the ATM straddle of 16.50 infers a price range by expiration between $48.50 and $76.50.
GE – General Electric – Affirmation that the industrial conglomerate will maintain its 2009 dividend along with bullish posturing today helped reverse Monday’s big slide in shares, which today are 9.6% higher at $17.00. The reading of fear has dropped some 20% to stand at 77% making it less expensive to take a position in the option market. Bulls have taken to heart the words from GE’s CFO and appear to have turned sellers of near-term puts at the 14, 15 and 16 strikes, which were all largely sold as confidence returned on the stock. The CFO announced that the company would aim to maintain the $1.24 dividend through 2009 and would further seek to protect GE’s AAA credit rating. As volatility turned south option investors sought rights to buy shares at $17.50 by December’s expiration as more than 23,500 call options changed hands at premiums ranging from 54 to 90 cents.
