Today’s tickers: VIX, AAPL, C, FCX, USU, SNPS, MVSN & BGP
VIX – CBOE VIX index – The bears refuse to go into hibernation as far as trading goes in the volatility index. The fear-gauge slipped below the 20 level for the first time in five weeks as investors sent the benchmarks indexes sharply higher on Thursday and the VIX is just clinging above 20 in Friday’s session. Some die-hards appear to keep buying volatility in the soon-to-expire December contract, while the January contract at the 27.5 and 32.5 strikes is largely being sold. Further down the strip we noted an interesting “free” trade. In the May contract it appears that a ratio call spread was placed. Some 5,000 May 20 calls were bought at 4.80 while 10,000 calls were sold at the 27.5 strike at around 2.40. In this case the trader is opening a 7.5-point window for the VIX but is using the premium credit from the sale of twice as many calls at the upper strike to pay for the trade. Of course there’s nothing in life that’s “free” and while this investor might be on to something here, should volatility surge as high as 35, the trade starts to lose money. It’s probably quite an astute volatility play given the recent failure of the index to breach 30 when the chips appeared to be down for the economy and corporate America.
AAPL – Apple Computer Inc. Option traders can’t keep away from the calls today. The share price has rebounded following an earlier decline at the maker of iPhones. Shares rose in price to $191.74 but option buyers lifted almost twice as many calls as they did puts. In the January contract the 200 calls remained active today with premiums trading at 9.0 indicating a breakeven of $209 at expiration.
C – Citigroup Inc. With a flat share price today, we’ve noticed a weight of bearish put action on the bank today, as investors make two put trades for each call option. Volume at 106,000 is decent on Citi and the action seems to be apparent in the January contract where what might be a put spread involving 7,000 puts at each of the 35 and 32.5 strike have appeared on the tape. Some 3,400 30 strike puts have also traded with shares in the bank trading at $34.24. In the January 2009 series, the 30 puts were bought 4,000 times at 3.50 while the higher 32.50 strike was sold 2,000 times at 4.20.
FCX – Freeport McMoRan shares rose 3.5% to $108.52 prompting a bullish bias to option activity. Two calls were put in play for each put on volume of 63,000 contracts. In the January series the 105 through 115 strikes were well bought, while 1,000 lots in the February 120 calls also traded at premiums as high as 5.15 for a 35% increase on Thursday’s closing price.
USU – USEC Inc. – Relatively heavy options volume was noted early Friday on USEX Inc., which provides low enriched uranium to nuclear power plants. Overall volume of 24,696 contracts have traded today with a definite bias to the call side. With a share price gain of 6.12% to $8.63 today, the January 7.5 call options have seen heaviest volume of just over 11,500 contracts. The 10 strike was also bought. Shares in the company had exceeded $24 during this summer and as such have lost around two-thirds of their value. In the grand scheme of things the fact that open interest in call options on the company outpaces put open interest by a factor of 2.75, tells us that investors are banking on a rebound.
SNPS – Synopsys Inc. – Options volume on this integrated circuit manufacturer just flashed red on our screening tools as option volume jumped to 9,000 lots for the day. Such volume constitutes one-in-four contracts of current open interest. Just 10 days ago the share price stood at $23.50, but thanks to a 10% rally today building on a recent rebound, shares are trading today at $27.50. December and January 25 calls are well sought after with January and March 30 calls receiving similar attention from the crowd. The shares responded to a fourfold increase in profits announced overnight and greater than predicted revenues.
MVSN – Macrovision – Normally when one company buys another its share price declines, while the share price at the bought company rallies. However, the Macrovision purchase of the TV Guide International brand at Gemstar looks like a marriage made in hall with both stocks tumbling by around one-fifth in value today. More than two-thirds equivalent of Macrovision’s 14,267 lots of open interest are in play today. Despite the negative underlying share price action, the December and January 20 calls are most actively traded. The Uncertainty over the Gemstar purchase is behind a doubling of implied volatility on the options series. Implied volatility stands at 65.8% from 32.2% with share in Macrovision off by 22% to $20.97.
BGP – Borders Group Inc. A 31,000 lot calendar roll looks to have been placed in the Jan09/Jan10 in-the-money calls at the 10.0 strike. The trade costs around 4.0 and appears to be a bullish longer-term play on the prospects for the bookseller. While both sides of the trade were executed at mid-market prices, the existing open interest at the Jan09 strike was probably being sold and reestablished at the 2010 call strike. Shares in the company are almost 5% higher at $13.00.
