Today’s tickers: HAL, CSTR, AMAG & FXI, SPY
HAL – Halliburton Co. – A sharp fall in Thursday’s session for oil services and sloppy cement-mixer Halliburton has not gained much traction at the end of the week. The stock today trades on both sides of unchanged and is currently at $31.71. While the prospects for additional liability are pretty much set out on the table following a report showing it provided BP with an unstable cement mix to surround the Macondo oil well, BP didn’t notice or attempt to rectify the error. Halliburton’s November puts are being sold as the stock stabilizes while the smart trade appears to be selling well out of the money call options expiring in April. Around 4,000 call options at the $36 strike price have traded to the bid telling us that an investor is taking a long stock and short call position or is simply just writing premium. The 52-week high at $35.89 remains a tall order after yesterday’s news making the short position in the calls look like a viable proposition.
CSTR – Coinstar Inc. – Coin and DVD-rental-machine operator Coinstar provided a pop for its shares after reporting surging revenues thanks to growth in its DVD-machine operations located in supermarket chains around the nation. Investors were primed for a dip in profits but were left smiling by a 42% increase in revenues on the movie-rental side. Call options on the stock were equally hot property on Friday after the share price jumped by 23% to $56.86. Formerly out-of-the-money call options expiring in November and which were trading at $1.50 yesterday traded all the way up to $8.00 a piece today despite a 20% slide in options implied volatility, typical after earnings. The share price surge put calls at six option strikes in-to-the-money on Friday. Compared to a 10-day average today’s overall options volume stacks up to more than five-times the norm.
AMAG – AMAG Pharmaceuticals – Undeterred by a 15% slump in shares of AMAG Pharmaceuticals one option contrarian appears to bought a call spread aimed at capturing a rebound in the stock within three months. Shares reached a low at $15.13 following a report that the FDA is insisting on sterner words of warning to appear on its anemia drug Feraheme following cases of serious adverse reactions. The company is also cutting its workforce by 68 positions after sales of the product slowed. Undeterred an investor placed a 2,000-lot call spread set to expire in January combining calls at the $17.50 and $20.00 strike prices. The trade was placed at a premium of 60 cents and reduced by half the outlay of simply going long the lower strike. In order to reach that strike based on a current trade price of $16.26 shares would still need to rally by 7.6%. Maximum profits of $1.90 per contract would require a rebound of 23%.
FXI – iShares FTSE/ Xinhua 25 ETF – After a bullish summer streak for Asian markets some tepid regional data appeared from South Korea and Japan overnight forcing some bourses around the region in to retreat. With only three weeks before November options expire one investor appears to have sought some downside protection in the event of a bigger retrenchment in global investor expectations. The China 25 ETF is only marginally lower at $44.80 at the end of the week. One investor paid a mere 6 cents to open a trade involving 2,000 puts at each of the $40 and $38 strike prices. To make the most from the trade – $1.94 per contract – Chinese shares would need to decline by 15%.
SPY – SPDR S&P 500 ETF Trust – How stocks might react after Wednesday’s announcement from the FOMC is anyone’s guess. In theory additional stimulus could spur confidence, investment and job growth that would help underpin corporate earnings and buoy equity prices. But major equity indices have already advanced a long way since the Fed hinted it was warming to the notion of a further bond-buying spree. In fact the S&P 500 index last traded below 1120 the week before the Fed nudged the market in mid-September with investors driving it to a peak at 1196 this week. A sizeable play made Friday could indicate that one investor is taking no chances ahead of the Fed using options to protective against a decline in the index wilts before November expiration, but it could also be the closing side to a bearish bet that proved premature. Today’s trade involved 100,000 puts at a strike price equivalent to 1120 on the index and the same amount of puts at the equivalent 1110 lower strike price. The investor chose the SPDR ETF where options liquidity is abundant to make his trade.
