Today’s tickers: LEN, PALM, MS, DRYS & ROH
LEN – Lennar Corporation. – Investors inflicted the kind of pain on Lennar one might think only Bernie Madoff’s dentist might be capable of, as they punished the second-biggest homebuilder 21% to $8.98. Put buyers were ought in force causing a doubling of option implied volatility from 105% to 217%. A massive number of 22,900 put options were bought at the January 10 strike, in line with the current number of open bear positions (23,040) on the stock at that strike. Given that today’s news is spurred on by fellow-builder, KB Homes (Ticker: KBH) it’s highly likely that this is fresh bearish buying especially since shares have rudely reversed two week’s worth of gains. Four times as many puts are in action today as investors paid a premium more than eight times yesterday’s to secure rights to sell Lennar’s shares at $7.50 before expiration next Friday. Premiums at that strike rose to 1.05 implying a break even at expiration of $6.45 on volume of more than 10,000.
PALM – Palm Inc. – The unveiling of the long-awaited overhaul and upgrade to Palm’s operating system yesterday is still creating positive waves among investors. Bucking the trend today, Palm’s share price is 39% higher at $6.18 while option traders respond with glee in buying February expiration call options straddling the current share price. The February 5.0 strike saw buyers scoop up 10,600 lots at 1.60 where open interest of 5,443 is established. At the 7.5 strike they bought 12,050 calls at a premium of 60 cents. Today’s volume is again twice that of current positions held by option bulls. Implied volatility surrounding the options slid south to 132% losing around one-third of its value today. Palm’s turnaround has transformed its share price reviving it from a meager $1.14 around one-month ago. It seems that the newly announced GPS, Wi-Fi-enabled phone with full slide out keyboard is likely to be a hit. The news was released under the careful gaze yesterday by iPod developer and former Apple executive, Jon Rubenstein.
DRYS – Dryships Inc. – As its shares have gently risen, options implied volatility has gently eroded on this shipping stock where investors were rewarded today with a 9.3% gain to $16.55. Option activity predicts that its shares will continue to rise into next week’s expiration as investors paid 85 cents for rights to secure Dryships’ stock at 75 cents and 35 cents to reserve buying rights should shares breach $20 by this time next week. Volatility is now well off its peak value in excess of 350% and has fallen again today to stand at 138%. In the February contract, the 25 strike calls were in demand where investors paid 75 cents to buy 1,100 contracts compared to open positions of a similar amount.
MS – Morgan Stanley. – Shares in MS bucked the trend today and added 3% to $19.36 sending them to a near three-month high. Investors bought calls at the soon-to-expire January contract at all strikes from 17.5 through 25 indicating both fresh bullishness or that some bears are fleeing old positions. Volatility is slowly melting at 89% and the trend is clear as twice as many calls are in action today compared to puts.
ROH – Rohm & Haas –With investors taking the view that any Dow Chemicals buyout of Rohm & Haas will take place at a 20% discount to the previous $78 per share price tag, Rohm’s put options have again been in demand today. Volume of 13,000 was evident at the January 45 and 50 strikes with shares today trading just a tad lower at $59.84. Nevertheless call activity at the January 75 strike was still notable despite the fact that the options have just a week before they should expire worthless assuming its shares don’t rally 25% in the meantime. Volume of 6,300 contracts changed place at 55 cents where that series call implied volatility reads 135%.
