Today’s tickers: BBY, GS, POT, MOS & AAPL
BBY – Best Buy Co. Inc. – It seems that the bad news continues to yield positive results these days, as investors unwound some bearish positions in the largest US electronics retailer helping spur on a 15% share price rise to $27.00. Shares in Best buy had fallen by 55% this year and so failed to remain in line with the 41% decline in the S&P 500 index. The company announced a 13 cent per share profit earlier, which compares to a 53 cent per share performance one year ago. Investors rallied around management’s decision to deal head on with what they “termed dramatic and potentially long-lasting changes to consumer behavior.” Best Buy said it would offer all employees voluntary severance and would fire workers if the plan wasn’t taken up by enough staff. It also slashed capital expenditure plans for 2009 by announcing it wouldn’t add as many stores in the US, Canada or China. Option investors reacted by lowering implied volatility by 14% to 77% on its options and sold January 20 strike puts at a 50 cent premium in the expectation that these will expire worthless following today’s news. Some investors bought January put spreads at the 27.5 and 25 strikes for a net cost of 1.20, which would reward them with a maximum gain of 1.30 per contract in the event that shares decline beneath $25.00 at expiration. Investors also added 1,400 call options with a 27.5 strike in the January contract paying an average 2.02 per contract.
GS – Goldman Sachs – During the last month or so shares in investment banker, Goldman Sachs have been under fire as analysts revised prospects under a “new” Wall Street regime, turning from forecasts of profits for the quarter ending November to losses. In the event, Goldman announced a $4.97 per share loss equal to a $2.12 billion net loss. Declining asset values and lower investment banking fees are behind CEO Lloyd Blankfein’s recent decisions to grab at a $10 billion government handout as well as not taking a 2008 bonus. Moody’s Investor Service followed the news with a cut in its long-term credit rating citing “ongoing credit market crisis” behind its decision. Revenues in 2008 fell to $22.2 billion from 2007’s $44 billion. In the recent quarter fixed income, currency and commodity revenues drooped 77% to $3.7 billion, while those from equity trading declined 19% year-to-date. Shares rose 9.9% to $73.03 while there was a mixed reaction in option trading on the stock, where investors bought calls expiring on Friday at the 75 strike, as others bought 65 strike puts. In the January contract it appears that investors took profits on 70 strike call options, which were sold at a 7.80 premium. There was also evidence of put spreads being deployed where long puts were established at the 65 strike bought against short positions at the 50 and 60 strikes.
POT – Potash Corporation of Saskatchewan – A broker upgrade for several fertilizer stocks helped the tone today and sent shares in POT 6.5% higher to $73.75. The share price has recently picked itself up of a $50.00 floor brought on by collapsing demand, dollar strength and a broad sell off for all commodity prices. The analyst said that a floor for fundamentals might be in place and that would help shares at the world’s largest crop-nutrient producer. One investor in the option market appeared to buy a call spread employing 800 lots in the December contract using the 70 and 75 strikes at a net cost of 2.85. Should the share price keep rising above $75 by Friday’s expiration the investor would make a maximum gain of 2.15 per contract. Also heavily trafficked was the 70 strike on the put side, where 4,000 lots were traded between 4.0 and 2.70 throughout the morning. With expiration looming the puts are fast losing value and are currently offered at 1.30.
MOS – The Mosaic Co. – Fellow phosphate and potash producer, Mosaic also felt the tailwind of the upgrade sending its shares 10% higher at $34.60. Investors in the option market paid premiums at more than twice yesterday’s value to establish long call positions in the December 35 strike, which saw total volume of 3,500 contracts compared to established longs at the strike of more than 9,000 lots. Option implied volatility gave way by around 10% to stand at 110%.
AAPL – Apple Inc. – A downgrade at one broker today helped sour the tone at Apple, whose iPhone products are expected to face weaker sales in the dour consumer climate over the holidays. Shares are slightly lower at $94.61 but the bias has been more clear-cut in option activity where put buying is evident at the December and January 80 strikes. The December 95 strike calls are also building a head of steam where some 18,000 lots have thus far traded with investors paying premiums of 2.48 to reserve buying rights through Friday. That implies a 3% gain over the next couple of trading sessions.
