Today’s tickers: PCL, TBT, GE, OXY, C, ODP, RMBS & S
PCL – Plum Creek Timber – It appears that an investor sold a 15,000 lots strangle on paper-manufacturer, Plum Creek using February options. The implied volatility reading on the share price of 38% remains above the 31% on the share price performance. Call premium at the 35 strike was sold at 1.15 and pushed it lower by 4% on the day while the 10% decline in put premium was accounted for by simultaneous selling of puts at the 25 strike price. Together the premium of 2.05 implies that this investor expects that shares in Plum Creek remain hemmed between $37.05 and $22.95 during the next five months. Shares are 0.4% higher today at $31.32. There is also action at the same expiration 30 series where 5,000 calls traded close to a 3.40 asking price while puts traded on identical volume at a mid-market premium of 2.63. This is more opaque than the strangle and could represent a reversal in which a Plum Creek bull is selling puts to purchase calls. However, it could also be a sold strangle in a similar vane to the above. The currently implied trading range in this case would be between $23.97 to $36.03.
TBT – ProShares UltraShort 20+ Year Treasury ETF – With today’s comments from Fed chairman Bernanke sending bond prices spiraling, investors have targeted call options on the inverse exchange traded fund, TBT, to target a continuation in the move. Likely investors expect further normalization in the yield curve as the discussion on a tighter policy stance expands. As bond yields have fallen during the recent four months, the price of this ETF has slipped from near $60 per share to $42. Today its price stands at $46.14 for a 4.8% gain. Note that the fund focuses on the 20-year area of the yield curve and is double leveraged, which account for today’s sharp price movement. Investors targeted call options in expectation of a further move and used October calls up to the 49 strike to play that move. They also bought calls at the 46 through 50 strike prices.
GE – General Electric – Option sellers chose to write call premium at the December contract using the 21 strike price today. We can see around 7,000 calls sold at premiums between 9-11 cents as shares in the conglomerate slip by 0.6% to stand at $16.13 today. The premium may be part of a long stock and short call combination (covered calls) if indeed the investor wants to enhance a bullish view on the stock. However, the likelihood in our opinion is that the investor is choosing a low probability event and taking in premium. The delta at the 21 strike indicates only a 7% chance of these calls landing in-the-money come year end expiration. March call options at the same strike also appeared to suffer a similar fate ahead of the weekend where sellers took in the approximate 40 cent premium some 6,500 times or around twice the established open interest at the strike.
OXY – Occidental Petroleum Corp. – We’re not sure that today’s 13-month peak in shares at Occidental have much to do with its purchase of commodity trading unit Phibro LLC from Citigroup, nevertheless it continues to march ahead. Shares reached $81.49 in early trading, which attracted a notable options transaction in which one investor appears to compound the bullish picture through the sale of out-of-the-money put options. The 10,000 lot transaction netted a 1.32 premium for guaranteeing the purchase of shares in Occidental at a fixed $60 in the event they have fallen from grace before February. Implied volatility on the shares has been steadily declining and today stands at 35%. We note that it’s been close to three months since the share price was below the strike price selected by today’s investor. In order to have Occidental stock put to him this investor would need to watch the share price slide by 25% from its current $80.40.
C– Citigroup – During the last one month shares at Citigroup have ranged from $4.11 to $4.76. More recently $4.31 has provided support on two occasions. With its share price marking time going nowhere today at $4.61 an investor appears to have bought a large chunk of stock and written an appropriate amount of 86,000 November call options at the 5.0 strike. A six-week rally to this strike would produce stock gains of 8%, while the 20 cent premium on the calls would add a further 4% gain not to mention a convenient exit point in the event that shares do rally.
ODP – Office Depot Inc. – The last time shares at office supply company, Office Depot traded above $8.00 was on September 9, 2008. On that date its share price reached an intraday peak of $8.50. Today we saw bearish options activity of 5,000 calls apiece at the November 8.0 and 9.0 strikes – both apparently sold. This investor possibly sees little prospect of shares breaching what should mark solid resistance at $8.50. The premium at the 8.0 strike was 50 cents and at the 9.0 strike just 20 cents. The company reports towards the end of October and its shares have been on a rampage from below $1.00 per share in March. It is very possible that the investor has been a medium-term bull and owns shares in ODP, currently trading down 1% on the day at $7.26. The option implied volatility at 76% is high considering the upwards trajectory on this stock, but is there for a reason given the stocks descent during the last 52-weeks from $23.00 to just 59 cents.
RMBS – Rambus Technologies – The 19 strike call option in October has drawn a significant crowd on Friday as investors pile on wagers that today’s 7.8% share price burst higher to $18.96 will soon see shares break above the August peak of $19.96. The 87% reading of implied volatility is helping to boost the premium on those calls to around one dollar each, which implies a fresh 52-week high for the stock ahead of next Friday’s option expiration. Yesterday volatility stood at 68%. Some 12,300 call options are in play today which is more than double the prevailing reading of open interest at that strike. Call option is notable to strike prices expiring next weekend all the way through the $24.00 strike, which indicates there must be something swirling around the market on this issue. In the January contract one investor bet that shares in Rambus might ease somewhat by establishing a put spread employing 1,000 contracts at each of the 17.5 and 12.5 strikes for a net cost of 1.80. The investor might benefit from a decline in the share price at expiration beneath a breakeven price of $15.70.
S – Sprint Nextel Corp. – A 2% decline in shares of the mobile-carrier has not deterred one option bull from buying more than 14,000 calls expiring in November at the 4.0 strike this afternoon. Shares at $3.60 apiece are lower after an analyst report suggested that its low-cost, wireless-calling plans could hurt its revenue growth. The option investor paid 25 cents for calls carrying a 40 delta implying a two-in-five possibility that they will land in-the-money through November. While this was the highest-trafficked option on Friday, other investors paid 15 cents for rights to sell Sprint’s stock at a fixed $2.50 through January expiration. Shares appear to be supported in the charts at $3.50 while today’s activity in options is accompanied by a shrinkage in uncertainty through lower implied volatility down to 75%.
