Today’s tickers: AMLN, ERTS, C, GFI, TEX, COST, & WFC
AMLN – Amylin Pharmaceuticals – Option volume is running at around 27-times its average today at diabetes-drug maker, Amylin, whose shares have been suffering from soft sales on its existing Byetta product, which has been linked to severe pancreatitis. Partner Eli Lilly affirmed that it would be moving ahead with requests from the FDA to approve one-a-week diabetes treatment, exanatide LAR. Shares in Amylin shot up more than 20% to $10.38 in hopes that when the FDA does test, the results will show that batches made at its Ohio plant are identical to those made at fellow-partner Alkermes plants. Option trading patterns were of interest. An investor used the July 2009 expiration in what appears to be a bullish play as he or she sold put options with strikes of 5.0 and 10.0 on volumes of 4,700 contracts. No significant open interest at either strike exists. At the higher 15 strike but using the same amount of call options, the investor appears to have sold calls at a 2.15 premium. The trading pattern appears to agree that these were sold but in truth they traded to a mid-market price. If the investor bought them, he or she appears to be preparing for a rocket launch in Amylin’s share price.
ERTS – Electronic Arts Inc. – We noted optimistic patterns in options trading amongst investors following weaker earnings and cost-cutting measures, which accompanied a share price decline. Today the company is a little better capitalized with shares higher by 2.5% at $17.53 and once again investors are displaying an appetite for call options reserving rights to buy the stock at $17.50 ahead of December’s expiration at the end of next week.
C – Citigroup Inc. — In yesterday’s activity we noted plenty of call selling in the March contract, while today with share in Citi down heavily once more by 5.3% to $7.85 the reaction is quite contrarian with option investors scoffing calls as if they haven’t been fed in a month. January and March call options are in heavy demand as their premium subsides with the drop in its shares. Investors have bought 18,000 10 strike calls expiring January and 12,000 calls at the 10 strike expiring in March. January premiums are weaker by as much as one third while those in March are one fifth lower. Earlier today head of M&A at Citigroup stated that revenues in 2009 for his department would shrink 15%.
GFI – Goldfields Ltd. ADR – We noted heavily-trafficked call action last week in this stock whose share price was below $7.00 at the time. Today, largely due to the rampant price of gold, shares are 3.6% higher at $9.43. In reviewing the impact of last week’s heavy call purchases at the 10.0 strike in January on the reading of open interest it appears that the subsequent decline in open interest indicates an investor quitting a short call position. The jump in its share price means that the same calls are now trading at 1.19 premium where today investors have purchased another 8,400 contracts. At the higher 12.5 strike more than 3,700 calls were bought at a cost of 52 cents. The pattern repeats in the April contract where 3,000 and 5,000 calls are at play. Of more interest is the purchase of 10,000 calls at the April expiration at the 15.0 strike, which is far in excess of existing bullish positions of 2,628 contracts. Gold is being buoyed by weakness in the dollar as investors grow increasingly optimistic on bailout plans and stimulus packages.
TEX – Terex Corp. – Talking of the stimulus package, we note unusual option activity unfolding at the world’s third largest manufacturer of construction equipment, Terex Corp. whose shares are widely tipped to benefit from public works programs. Indeed its shares have more than doubled from a $8.97 low on November 21 and are higher by 2.5% at $18.04 in today’s session. Option activity and open interest patterns refute the thoughts of its CEO, Ron DeFeo, who told CNBC television last week that “infrastructure investment will equal economic prosperity,” which should benefit his company. Today we’re watching option activity build not on the bullish side but on the bearish side where investors have bought some 5,400 puts expiring in January at the 15.0 strike. Open interest at the strike currently totals just 518 lots. Yesterday there was another build in put options at the January 17.5 strike, which rose by 1,300 lots. The option market doesn’t seem to confirm the same bull case that the media portrays for the sector. The only significant build in call open positions is at the soon-to-expire December contract where investors have amassed 3,282 contracts up from one-third of that one week ago.
COST – Costco Wholesale Corp. – The company announced a disappointing slowdown in sales growth today in part due to the declining value of gasoline at its stores as its price drops. Nevertheless, sales growth on the year of 3.6% is poor in comparison to a 12% rise this time last year. Consumers impacted by all of the negative economic factors are playing this out as we know by spending less and judging by reports of volume growth across the street at WalMart, Costco is losing out strategically. Shares have pared earlier weakness but remain lower at $52.48. Option traders seem to be displaying cautious optimism and have focused on both December and January 50 and 52.50 strike calls, which are most voluminous today. Volume at the same expiration puts conveying rights to sell shares at $47.50 by next Friday summed to more than 13,000 contracts of which more than half were sold. That would apparently sum up traders’ expectations that while Costco might be lower today, it’s not out for the count.
WFC – Wells Fargo – A noteworthy analyst eased the earnings prospects for Wells Fargo into 2009 citing an 11% EPS reduction, which drove shares down by 7.8% to $26.92 by lunchtime. Traders bought almost twice as many puts as they did calls and the their target today was set at the January 20 strike puts which traded actively on volume of 7,800 contracts at a premium of 1.40. It’s becoming apparent that further financial sector weakness can’t be ruled out, in the case of WFC traders are looking at a revisit of the 52-week low at $19.78.
