Today’s tickers: AAPL, INTC, MSFT, ROH, WFC & WFT
AAPL – Apple Inc. – Volume at the January 80 and 85 strike puts in Apple Inc. quickly surged to around 10,000 lots each as investors recycled a story appearing at a tech-website that the health of Apple’s CEO and gadget-wizard, Steve Jobs was “declining rapidly.” Apple options are generally extremely liquid throughout the day and investors generally have plenty of product or strategic fodder to react to as they deal actively in and out of option contracts. The January 80 strike puts had traded in a narrow 1.63-2.05 range until around 12:30 ET before the story began circulating. Investors pounced on put contracts giving investors rights to sell shares and helped pushed put prices as high as 3.10. The January 85 strike puts also jumped from a 3.07-3.72 intraday range to as high as 5.05 as volume jumped. Investors fear that Apple will lose some of its appeal without Jobs at the helm. Recently speculation centers on Jobs’s withdrawal from January’s MacWorld annual conference in San Francisco. Traders marked option implied volatility 5% higher as a result of the trading.
INTC – Intel Corp. – Investors looked to tech as a possible bright spot in early 2009 sending several bellwether computer-related stocks higher. Among them shares of Intel gained 3.5% to $14.63 while option activity confirmed a bullish stance. Around 40,000 option contracts changed hands by lunchtime with investors exchanging call and put contracts with an even bias. However, the direction of the trading was of more interest. For example, volume of 7,390 lots in the January 12.5 strike puts was largely instigated by one investor selling premium for just 18 cents. If this is a naked position the investor needs to see Intel shares remain above $12.32 at expiration. On the call side the 14, 15 and 16 strikes were active with the 15 strike receiving most attention on volume of 8,640 contracts where investors paid average premiums of 51 cents. Some investors spread their bull positions by selling the higher 16 strike producing a call spread costing 31 cents. A maximum profit of 69 cents per contract would result if shares reached or exceeded the upper strike price at expiration.
MSFT – Microsoft Corp. – We can’t observe the same bullish pattern in Microsoft despite the fact that its shares are 2.3% higher at $19.41 this morning. A put/call ratio of 1.35 indicates more bearish plays being deployed. Most of the volume continues to build in the January 2010 contract where investors appear to be selling 15 puts and buying the 17.5 strike. Volume of around 5,000 lots appears at each strike but we don’t necessarily see these being combined by the same investor. The major story is the swollen 17,800 volume registered at the 20 strike puts where buyers have paid 4.5 to secure selling rights. On the call side we’re also seeing sellers line up to take pot shots at both the 25 strike where premium is 1.50 and at the 40 strike where 15,000 lots have been sold to the 6 cent bid.
ROH – Rohm & Haas – Option investors are throwing fuel on the fire of speculation surrounding the potential outcomes for takeover discussion between Dow Chemicals and Rohm. The walkout by Kuwait Petrochemicals at the weekend apparently left Dow floundering for cash to pay for its acquisition of Rohm & Haas, but now analysts are left piecing together intentions to use bridging loans as well as cash from Warren Buffet to finance the deal. Buffet is a shareholder in Dow Chemicals. As we noted yesterday, the break-up was seemingly taken as worse news for Dow than for Rohm and today investors are rethinking the deal price for Rohm and have lifted shares by almost 10% in the session to stand at $58.58. Confirmation from the option pits has investors selling January expiration put options at the 45 strike at a rich 3.20 premium, while other bullish activity centers on demand for 70 and 75 strike call options bought heavily at 1.95 and 60 cent premiums respectively. Option implied volatility shrank by 15% to 120% not necessarily because of any increased certainty surrounding a solution, but because shares stopped falling.
WFC – Wells Fargo & Co. – Shares are 2% higher at $28.40 but there is a definite bearish pattern emanating from option trading where investors appear to be seeking protection against weakness throughout the first quarter. More than 5,000 puts at the January 20 strike are in play with buyers paying a 30 cent premium to secure rights to sell shares at the fixed strike price in the event that shares decline. At the February 27.5 strike they paid 3.05 to secure selling rights using around 1,250 put contracts, which compares to open interest of perhaps twice today’s volume. April puts at the 22.5 strike were purchased at 2.70 some 2,200 times. Option implied volatility declined marginally to 83% but still seems high given that yesterday’s option activity involved the sale of put options on several regional banking stocks in what might be considered an early bullish sign for the financial system. Today’s pattern in Wells Fargo is a sharp contrast.
WFT – Weatherford International Ltd. – Option investors sold at-the-money put options in oil and gas services company, Weatherford whose shares simultaneously rose 2.3% to $10.22. The January 10 puts were sold on volume of 7,000 lots at a 75 cent premium indicating that investors believe that its share price will remain at least above $9.25 by the time they options expire next month. If the shares are worth $10 or above the investors get to retain the credit from the put sale.
