Today’s tickers: VIA, AMAT, NVLS, LAMR, DOW & ROH
VIA B – Viacom Inc. Class B – Our ‘hot by options volume’ market scanner picked up Viacom this morning due to an interesting risk reversal strategy initiated by an investor at the March contract. The combination involved the sale of 5,000 puts at the 12.5 strike for 60cents each and the purchase of 5,000 calls at the 17.5 strike for 70cents per contract. This strategy protects the investor short of the stock and allows for an exit strategy should shares of VIA drop from the current price of $15.17 to the 12.5 strike or below come March. The investor, who possibly initiated a short stock position as high as $20 earlier in January, is also protected should shares rally above the 17.5 strike as the 10cents paid for this risk reversal provides the right to get long of the stock at the strike into the March expiration.
AMAT – Applied Materials – Shares are 3.5% higher at $10.20 at AMAT and we think we’re observing some covered call activity involving two blocks of 10,000 call options in each case. It appears that an investor sold both blocks to the bid at the March 11 strike calls and the July expiration 13 strike calls. Both trades went through at a 50 cent premium on the semiconductor manufacturer. A covered call would involve the purchase of the underlying stock hoping for share price gains, while the sale of the call options provides income and an exit strategy assuming the shares are called away at the strike price by expiration. In the case of AMAT, the shares spent just two days in the past 74 above $11.00 per share, which is sufficient reason to sell calls. Prior to that they broke down from a short-lived rally above $13.00, which again is further cause to use that strike price as resistance.
NVLS – Novellus Systems Inc. – The company manufacturers the component parts of semiconductors and in a sense that makes them higher up the food chain in recovery terms than AMAT. Shares are almost 5% higher today at $14.88 and appear to have made a sustained break above $14.00 for the first time since November 11, 2008. Our option scanners highlight bullish call buying of around 8,500 contracts at both the March 15 contract and the June 17.50 contract clearing indicating investors expect a sustained recovery in the share price. The March premium paid for calls was 90 cents and in June was 85 cents.
LAMR – Lamar Advertising Co. – CL A – Outdoor advertising company Lamar jumped to the top of our ‘hot by options volume’ market scanner this morning after an investor doubled up on an existing position established on January 7, 2009. The pattern seen today appears to be identical to the trade made on the 7th when shares stood above $16.00. Shares have slumped since the beginning of this month to $10.47 today and prompted this investor to target the downside. By selling 10,000 calls at the 17.5 strike for 55cents and purchasing 10,000 puts at the 12.5 strike for 4.0, the cost of put protection for this investor was effectively reduced to 3.45. This player used the call premium to offset the cost of put protection, and will start to see profits at breakeven if shares continue to decline to $9.05.
DOW – Dow Chemical Company – The heaviest option volume in Dow today comes on the put side where it appears investors are bailing out of bearish positions at the February 15 strike. The near-16,000 put options in play today represent a little under half of the 36,592 open interest at the strike. It appears that investors are concluding that being sued by Rohm & Haas for not tying the merger-knot on time is better than doing an economically unviable deal. Dow’s shares are slightly higher at $13.32 today while there is a clear sigh of relief shown by the reduction of implied volatility by 17% to 78% on options contracts today. Earlier, investors created a fresh 52-week low at $12.51 on its share price.
ROH – Rohm & Haas – On the other side of the deal, we’re not sure if investors are banking on Rohm being successful in its quest to press for a deal at the original deal price of $78.00 per share, but there’s a huddle of activity surrounding the February 70 strike calls. Buyers have been busy beavering away paying 50 cents premium for the rights to buy at $70 per share by expiration next month. Option implied volatility is a little easier at 65% today while option traders have put 42,300 contracts in play today with 10,500 lots apparent at that February 70 call line.
