Today’s tickers: DNA, C, UNH, RIMM & WB
DNA – Genentech Inc. – Option traders have reacted to unsubstantiated market chatter that deal financing for the previously announced $89 per share bid from Swiss drug maker, Roche may be looking good. Genentech’s shares are trading 2.1% higher at $82.05 while option traders have bought January expiration calls at the 85 and 90 strike, while in March they sought to lock-in to buying rights at the 90 strike for a 3.0 premium. An investor bought 2,500 contracts there. In the June contract buyers reached for the 95 strike contract, which at a 2.80 premium would need shares to rise by 19.2% from today in order to breakeven.
C – Citigroup Inc. – Several major financial names had their ratings cut before the market opened as S&P cited increased risks to the sector as it cut banks’ outlooks. Among them was Citigroup whose shares proceeded to tumble 5.4% to $7.03, which is still well above the $3.05 low established in November. Option traders rolled bearish bets from the December contract to the next expiration in January at the 7.5 strike choosing to let them run faced with a drought of positive news. Investors also sold calls at the 12.5 strike in March at a 22 cent premium, clearly indicating little chance of a meaningful rebound in Citi’s share price by then. They also bought 2,300 put options in that month for 99 cents per contract, which infers a $5.01 breakeven price at expiration.
UNH – United Health Group Inc. – Perhaps it’s the light relief that investors are responding to following news that a judge has given the thumbs-up to a $900 million settlement relating to the executive options backdating scandal from 2006. Whether investors were expecting a larger fine of the company is moot, but suffice it to say UNH is on the increase today by 4.1% at $25.93, which has created some decent option activity. It appears that investors are adding to bullish call plays by snapping up January cycle calls at the 30 and 35 strikes. Around half of today’s 17,800 overall volume appears in the 30 strike line where investors in paying 35 cents for the right to pay $30 for the shares are expecting its share price to jump 15.7% before expiration. The recent healthy trend for the stock has seen its measure of fear subside to around 61% today, which compares with a peak value of 1105 when the market hit skid row.
RIMM – Research in Motion – The company provided great news for fans of the Blackberry today as it announced that quarterly revenues through February will exceed the $3 billion consensus estimate. Shares are presently 7% better at $41.15 while the single most active option contract was at the January 53.375 strike price where 8,614 contracts were added to current open interest of about half that number. Option buyers paid a premium of 45 cents to lengthen such positions today. The good news saw investors ditch premium on the options where its implied volatility shed 25% today to stand at 72%. The shares had been under pressure given stories that Storm supplies were not moving as quickly as the company would like especially in the face of weaker consumer spending patterns.
WB – Wachovia Corp. – Despite a positive start, shares at Wachovia are now lower by 0.5% at $5.75, which is possibly explained by options activity, which saw put buyers undermine confidence in the stock. Both January and February expiration are in play with put buyers seeking out fresh bear plays at each of the 4.0 and 5.0 strikes. The concentrated volume looks like put spreading but we notice using time and sales studies that most of today’s action looks unrelated and involves all round buying.
