Today’s tickers: TIF, RYL, MTH, RIMM, ALL, GLD, MSFT & WFC
TIF – Tiffany & Co. – It appears that one investor has decided to ‘Return to Tiffany’s’ in order to close out a large number of puts established on January 13, 2009. Shares of the high-end jewelry store were down 3% to $20.97. Shares lifted higher to $21.18 after 22,000 puts were unloaded at the February 20 strike price for a premium of 45 cents per contract. At that same strike an additional 2,435 puts were sold for 50 cents apiece. Similarly, at the February 25 strike, 25,000 puts were shed for 4.10 each. Implied volatility has come off a few points and currently stands at 67%, while share price seems to have deserted its 52-week low of $16.61 despite ongoing retail angst.
RYL – The Ryland Group, Inc. – Just a couple of hours after Elizabeth Duke, a member of the Fed’s Board of Governors, called on the Fed, banks and Congress alike to address the foreclosure crisis, RYL and Meritage Home Corp. popped up on our ‘hot by options volume’ market scanner. It appears that one trader has been shedding out-of-the-money puts like there is no tomorrow. Perhaps this individual feels optimistic that Duke’s words will soon be heeded, and that the housing sector will get a dose of much-needed confidence. Shares of RYL are up 2.25% at $18.17 and are likely responding to the trader’s high-hopes. In February, over 12,500 puts were sold for 5 cents at the 12.5 strike, while at the 17.5 strike price over 10,000 puts were sold for a premium of 60 cents per contract. A similar pattern was observed in March, where 10,000 puts were sold at the 15 strike price for 85 cents apiece, and another 10,500 were shed at the 17.5 strike to reel in a premium of 1.70 each. This investor is a stock bull and expects all of the sold puts to remain out-of-the money and so expire without value.
MTH – Meritage Home Corporation – Put sales were abundant on home-builder and designer, Meritage, this afternoon. Shares are currently up 3% to $14.15. One investor sold 10,000 puts at the February 12.5 strike price for a premium of 40 cents per contract. At the March 12.5 another lot of 18,000 puts were shed for a premium of 1.55 apiece. Despite the decline in premiums on the puts side, options implied volatility remains at 136% today.
RIMM – Research in Motion – Canada’s trade deficit registered a deficit for the first time since 1976 according to data released earlier. That speaks volumes about the slump in economic activity and demand for not only commodities, but other consumer goods. Demand for upgrades from the Blackberry crowd fell off the proverbial cliff too as consumers kept their pocketbooks closed. The company grew its subscriber base but said profits and margins were under pressure, which caused its share price to lunge headlong towards the $35 marker, which it touched in December. Today shares are down 17% at $47.24 while put buyers scurried towards defensive put positioning. Soon-to-expire put options for February were all bought as low as the 35.0 strike, which traded at around 7 cents. Sellers were evident in the March call series at strikes between 50.0 and 70.0 while puts were in demand most notably at the 45.0 strike.
ALL – Allstate Corp. – Shares of the insurance company have improved by 5% today to $21.67. Option implied volatility is softer but still lofty at around 79%. ALL caught the attention of our ‘most active by option volume’ market scanner after one investor initiated a few large-volume call trades in the March and April contracts. It appears that 18,750 calls were sold in two hefty trades of 9,375 for 65 cents and a second block of 9,375 for 70 cents at the March 25 strike price. This could be tied to stock in which case this would be a covered-call strategy with the investor buying stock and selling calls. In the April contract, an investor has traded 15,000 calls at the 35 strike for 10 cents apiece, and an additional 15,000 calls at the 37.5 strike price for about 5 cents each. Why so far out-of-the-money in either case is unclear to us unless the investor is expecting a sharp reversal of fortunes and is looking for much more of a gain in its shares and is again writing premium. At the turn of the year ALL shares traded as high as $33.50.
GLD – SPDR Gold Trust – We noted the options activity in our daily update yesterday and we must do so again today on account of two standout trades. First of all, gold’s price continues its acceleration with the February future trading 3.1% higher at $944.10 on fears for a worsening economic outlook. One option trader sold call options expiring in two weeks time perhaps in the expectation that the run-up has been too strong. Some 10,000 calls at the 90 strike fetched a 3.70 premium implying an expiration breakeven at $933.70 per ounce for spot gold. This investor, could alternatively have been taking profits. Elsewhere in the April contract, it appears that an investor went long 2,000 straddles at the 93.0 strike at a combined 16.10 premium. Gold is possible an excellent instrument to place a trade that would benefit from a breakdown in the economy or some resumption of stability from government planning. The implied breakevens for this trade would be equivalent to spot prices of $769 below and $1090 above. Most likely is an escalation of the current problems causing equities to slide playing into the hands of gold bulls. However, simpler than this would be a rise in the implied volatility on gold, which currently stands at 37% through the GLD options. If this increases call and put premiums would rally increasing the straddle price.
MSFT – Microsoft Corp. – Shares currently stand at $19.33, up nearly 3% by midday. One option trade stood out in the January 2010 contract because it dominated more than half of the options volume on the stock today. It appears that one investor initiated a short strangle by selling 28,573 calls at the January 22.5 strike for 1.84 each, and selling another 28,753 puts at the January 15 strike for 1.78 per contract. This trade yields a net credit to the trader of 3.62, and appears to conservatively mirror the 52-week range on the share price. The straddle breaks even at $11.38 beneath the lower strike price and at $26.12 above the upper strike. Shares have not fallen beneath $16.75 in the past year, and it would take a 35% rally from today’s price to reach the breakeven on the upper strike. Thus, it appears that this straddle is well placed and should allow this trader to keep the premium unless there happens to be a huge shock to MSFT in the next year.
WFC – Wells Fargo & Company – Despite today’s share price rally of 5% to $17.20, option traders are still seeking downside protection by purchasing puts in February. At the February 15 strike price, over 10,000 puts were scooped up at an average cost of 84 cents per contract. 9,700 of those puts cost one individual 80 cents, indicating the presence of one particularly bearish trader. There were also nearly 7,000 puts sold at the February 14 strike for an average premium of 47 cents. Perhaps then this can be read as trader optimism that WFC will not fall back down to its 52-week low of $13.40.
