Today’s tickers: : YHOO, ORCL, ERTS, MRVL, XOM, & C
YHOO – Yahoo! Inc. – Ivory Investment Management has urged management at Yahoo! to consider spinning off its search engine business to Microsoft in a move, which might raise $15 billion for Yahoo! and thus value the company at $24 per share. According to one source Ivory owns 1.5% of Yahoo’s outstanding shares. In an SEC filing for the quarter ending in September the company revealed that it had almost doubled its stake in the company adding 6 million shares lifting it to 11 million, representing 0.8% of Yahoo’s float. During the same quarter Yahoo’s share price ranged from $20.66 to $17.00, which means that the investor is likely saddled with hefty losses at present despite today’s 6.7% share price rally to $13.02. Option traders are well known for playing Yahoo! rumors and speculation and today is no exception. Investors have added to bullish call positions spending 10 cents per contract to buy more than 2,000 call options at the January 22.5 strike. Shares would need to rally by 72% for that dream to be realized. More noteworthy was the purchase of over 19,000 call options giving the buyer the right to acquire Yahoo! stock at the fixed price of $20.00 before April’s expiration. Those options cost a premium of 72 cents.
ORCL – Oracle Corp. – Enterprise information management firm Oracle saw a sizable amount of option activity earlier, which appears to be extremely bullish. We see little news to spur such a transaction today that involved two chunks of 25,000 options that traded simultaneously. Tech companies, especially semiconductor makers were in focus yesterday as investors tried to call a turning point for the economy banking on the view that tech is first out of a recession. Today, this view was crystallized as an investor apparently bought 25,000 call options at the 20 strike expiring in January 2010 for a 2.80 premium. In order to defray the cost, the same amount of puts were sold in the January 2011 put options at the 12.5 strike where the premium is 2.40. The strategy is probably built around the view that over the course of the next 6-12 months, tech will indeed rally as the recession is dealt with. Not only will that likely boost the cost of calls should Oracle’s share price rally from today’s $17.41, but it would also erode the premium of the short put position as shares depart from the strike price. Investors also bought around 5,000 March expiration call options at the 19.0 strike today at premiums of 1.20.
ERTS – Electronic Arts Inc. – A 20% reduction in projected revenues and profit from video-game maker, Electronic Arts hurt shares today swiping 16% off to $16.15. The observation by management of weaker game sales in both North American and European stores spurred a 6% headcount reduction and the promise to cut back on unspecified titles. The company recently launched its latest action-driving game, “the Need for Speed,” but declined to identify exactly where sales were idling. Option traders seemed to be cautiously optimistic, however, in their positioning as they snapped up call options expiring next month at the 17.5 and 20 strikes. They also established bullish positions in the March contract at strikes as low as 12.5 where 2,000 contracts traded at a 35% discount to Tuesday’s premium and as high as the 20 strike where more than 5,000 calls were traded at 1.75.
MRVL – Marvell Technology Group Ltd. – One source is citing unsubstantiated street-chatter that, once again, Texas Instruments might attempt to buy Marvell. It’s always hard to know whether the rumor comes after a share price gain or whether there is substance, but today we do know that a 5% rise to $6.74 for Marvell’s share price has created a hotbed of action in Friday’s expiring options at the 10 strike. The cheap play has seen 12,900 calls change hand around 10 cents premium with buyers clearly banking on triple-digit gains if the rumor plays out to be true imminently. In the January contract call buyers have snagged 9,000 calls paying 45 cents to secure the right to buy Marvell shares at $7.50 before expiration, while the 10 strike has traded on volume of 3,000 lots at 15 cents.
XOM – Exxon Mobil – If shares at Exxon add just another couple of bucks to today’s rally to $80.20, that would take them to a three-month high. Within daily options volume of 59,000 contracts investors have used the share price rally to pick up 8,100 put options at the July 70 strike, where only 1,215 lots of open interest exist. Perhaps they are not so much focused on further advances, rather than looking in the rear-view mirror at the near $55 per share during the fall.
C – Citigroup Inc. — Shares at Citigroup are bucking the broader market rally and are lower by 3% at $8.30. The contract is heavily trafficked today on total volume of 118,000 contracts. Of note a sizable chunk of call options expiring in March at the 12.5 strike was sold to the bid at a premium of 62 cents. Established bull positions at that strike sum to 14,924 meaning that this could be a closing sale with an investor potentially banking profits as shares rose. Implied option volatility has recently come off the boil and has fallen back to 120% following the injection of funds from the treasury.
