Today’s tickers: YHOO, MSFT, BUD, CLR, CX, MVL, S
YHOO– There’s no denying that option traders were among those caught off-guard by Microsoft’s decision to walk away from an increasingly petulant Yahoo board amid stalled takeover negotiations. The decision sent Yahoo shares down as much as 20% in early trading as the market instinctively yanked away the takeover premium that had padded Yahoo shares since the early February Microsoft bid. Shares have since taken back some of those losses and now read 13.5% below Friday’s closing level at $24.80. With calls outmoving puts by 3 to 1, it must be said that there is relatively little inclination among traders to see Yahoo shares plunge into the mid-teens, pricewise, though plenty of speculative two –way traffic is in evidence at strikes 22.50 and 25 in the May contract, while the sale of May 30 calls suggests no re-visitation of the original Microsoft asking price is imminent here. Traders appear willing to buy June 22.50 calls at $3.35 apiece.
MSFT– Last week we noted that the fortunes of Yahoo and Microsoft appeared to be largely entwined – at least in the minds of many option traders. And while the stock market has at least rewarded Microsoft’s “good dad” gumption in walking away from a thankless situation by sending shares .82% higher to $29.48, option traders appeared willing early on to sell May 30 and 31 calls on heavy volume as the value of those positions eroded as much as 20%. The implication of this volume appears to be a view that while walking away from a Yahoo price tantrum allows Microsoft to maintain a modicum of dignity in the negotiation, it doesn’t solve the longer-term problem of its ailing online presence.
BUD– For the second time in a week, call volume and implied volatility in Budweiser parent Anheuser-Busch is showing an upward deviation from the norm. Last week, we intimated that the sudden flurry of upside positioning was the result of renewed merger speculation involving InBev. With overall option volume registering at 4 times the normal level, calls are out-trading puts by 7 to 1. Meanwhile, implied volatility has risen more than 25% today and now reads just under 28% – its highest level since January. Heavy two-way traffic is being observed in June calls at the 55 and 60 strikes, while September 60 calls sold off heavily. Shares in Anheuser-Busch are up nearly 2% today at $51.21, extending a 7.6% rally for the stock since April 25.
CLR– Shares in Continental Resources rose 13.5% to $49.76 – a new 52-week high – after the independent oil and natural gas explorer reported a 64% surge in Q1 profits. Option traders put 11 times as many contracts in play as usual, with heavy buying in June 45 calls for $6.30 apiece possibly attesting to the degree to which call options have served to fill the thirst for underlying shares. The high price of these June 45 calls may have been defrayed in part by selling in September 50 calls, which traded to the middle of the market at $5.90.
CX– Options in Mexican cement producer Cemex are trading at more than 10 times the normal level today as its shares show a 1.2% gain to $28.35. The option activity appears heavily localized in the October contract, where it looks like short put butterfly spreads were used at the 15, 22.50 and 30 strikes in anticipation of volatile share price movement by October. Implied volatility at 38.5% currently shows a minor elevation against the 37.4% historic reading, as the current share price represents about an $8 premium on the 52-week low.
MVL– Shares in Marvel Entertainment, the comic book, film and merchandising giant, are up more than 7% to $32.46 – setting a new 52-week low – following the successful open of the summer blockbuster “Iron Man.” With option volume registering a more than 7-fold increase on strength of the opening weekend ticket sales, it looks like Marvel’s “Iron Man” franchise is poised to crush the competition with “boots of lead” (apologies to Black Sabbath.” The two-way traffic observed at the May 30 strike may be due in part to traders taking profit on existing positions given the day’s 44% gain in value for these contracts to $2.75. The trend for the remainder of the summer calendar is to buy calls at the 35 line – in June, this position costs just 95 cents. Implied volatility in Marvel Entertainment shares has remained largely constant, but still showing a persistent elevation against the historic reading – at 43.5% the implied volatility reading shows option traders pricing in 41% more price risk to Marvel shares than is already charted in the stock. This is a strong indication that there’s still plenty of juice in the “Iron Man” apparatus over the next 30 days before its share price falls to earth.
S– Implied volatility in options of the nation’s third-largest cell-phone carrier, Sprint-Nextel rose more than a third to 83.6% this morning on reports that Germany’s Deutsche Telekom AG may be interested in an acquisition. A merger of the two companies would combine Sprint with Deutsche Telekom’s American T-Mobile division. The takeover chatter was sufficient to send shares nearly 4% higher to $8.19, with calls outmoving puts by more than 3 to 1, with heavy buying at the May 10 strike for 15 cents apiece. It looks as though some traders may be deferring long-volatility exposure to the August contract, where similar volumes suggest that some long strangles may be going through at the $5 put and $8 call strikes – the $1.40 price of this position would cover the buyer in the event of a break to the upside past $9.40 or down below $3.60, though additional buying interest in the August 9 puts suggests that the bias here is strongly to the upside.
