Today’s tickers: CHK, LEH, XLF, GM, BAC, HBAN, RF, LNN, ACF, AN, KMX, TSN
CHK– With stocks broadly buckling under bad vibrations from the financial sector, companies on the leader board are conspicuous for their thin ranks. Shares in Chesapeake Energy are reading 3% higher at $65.95 heading into the close, setting the latest in a succession of 52-week highs in a year that has already seen its price appreciate nearly 67%. Chesapeake options have attracted bullish action over the past month on optimism about what lies beneath the fabled Haynesville Shale area. What’s striking this afternoon is the preponderance of front-month call volume in excess of open interest, despite the minimal time value left to these positions. Calls at the June 70 strike have been bought heavily today on a sum volume of some 8,000 lots, some 4 times the open interest. Buying interest extended into October calls at strikes as high as 75. Traders we’ve spoken attribute this upside position to reports that Exxon may be more interested in expanding its presence in the shale space. Implied volatility is showing a very slight increase relative to the historic reading, as the 3-to-1 ratio of call volume to put volume echoes the very bullish stance in open interest – traders hold twice as many open calls as puts.
LEH– Reports this morning that Lehman Brothers CEO Dick Fuld may not, in fact, be seriously considering a sale of the firm sent volume in Lehman options bouncing back with a vengeance. With shares down 1.3% and twice as many put options trading as calls, traders made rigorously clear that the branch of mercy they had extended to the bank since Monday’s reported loss squared with last week’s guidance could easily be yanked away. Implied volatility on all Lehman Brothers options pulled back to as low as 77.5% on Monday but has climbed nearly 20% in the interim. Today’s put volume is primarily concentrated in June and July strikes of 25 and under.
XLF– Shares compounded yesterday’s listlessness with a 1.4% decline to $22.59 still hovering around the 52-week lows, as option traders price in double the risk to the financial sector at large over the next 30 days. While the nearly 625,000 lots trading by day’s end showed about twice as many calls trading as puts, the action appeared scarcely contrarian. Earlier today we observed heavy buying in July 22 calls, against an overweight of sellers at the 23 and 24 strikes, suggestive of call spreads going through at those strikes in expectation of range-bound share action near current lows into the next month.
GM– GM shares dropped nearly 6% to $14.90 after a JP Morgan Chase analyst forecast that the automaker could be forced to borrow $10 billion this year amid concerns about its liquidity given high oil prices and the outlook for higher interest rates. The risk to its share price over the next 30 days is apparent from a look at its implied volatility reading, which at 69% is a two-month for all GM options and shows a marked elevation to the 47.6% historic reading on its shares. With more than twice as many puts trading as calls the defensive mood is ostensible, with what appears to be put spread activity in the front month at strikes 12.50 and 15 (these in excess of open interest, despite the imminent expiration), and heavy buying in September $10 puts.
BAC– The recent turbulent downside in regional banks has also made a dent in shares of super-regionals like Wachovia and Bank of America, and today is no exception. With shares in Bank of America down 2.7% to $28.45, setting a new 52-week low (a familiar refrain out of the regionals and super-regionals these days), option traders are pricing in heavier than normal risk to contracts offering share price protection – implied volatility at 51% towers above the 31.4% historic reading on the stock. Of note in the 190,000 active contracts trading today was heavy buying in July 27.50 puts at $1.45 per contract, predicting continued dramatic erosion below the 52-week low. Heavy buying later in the session at the 30 strike may suggest long strangle plays going through.
HBAN– Shares in the Ohio-based regional bank dove 11.5% to $5.40 by afternoon, and implied volatility on its options rose more than any other ticker on our platform, up 81% to an imperiled 123%, some 2 and a half times the historic reading. Options are moving at more than 10 times the normal level with heavy buying in July 5.0 puts showing pronounced expectation among traders of continued erosion below the $5 level into next month.
RF– Regions Financial – Another dark and stormy mover in the squall known as regional banks, shares in Regions slid 10.5% to $11.40, clipping more than a dollar from the 52-week low as we saw implied volatility up some 61% to 114.5% – making it one of the session’s top implied volatility gainers and approaching twice the historic reading. With options trading at more than 10 times the normal level, puts are out-trading calls by more than 6 to 1, with notable fresh positioning in the July 10 puts. The value of this position has appreciated some 300% on the session at $1.00 as the market prices in a slightly better than 1-in-4 chance of a break below $10 over the next month.
LNN– Shares in Lindsay Corp., a Great Plains company that makes crop irrigation systems, dropped 16.6% to $103.70 today on an earnings miss that tacitly acknowledged that not even hefty demand for foodstuffs was enough to help the company dilute the higher cost of steel. This is a company whose valuation has risen dramatically over the past several years, but is well off its 52-week high of $131.07. Implied volatility at nearly 75% shows a 28% elevation above the historic reading. With the equivalent of nearly half its open interest in play, Lindsay met the criteria for our scan of unusual volume movers with a near 10-fold increase in option trading activity. What’s notable is that this was centered in fresh call activity at the June 110 line, suggesting that these were not just closing trades going through. These traded for $2.10.
ACF-Shares in auto-loan financing company Americredit, which manages more than $15 billion in car loans, tanked after analysts at Friedman Billings Ramsey suggested that consumer credit stocks did not yet reflect recessionary valuation that there could still be more downside. Implied volatility on all Americredit options shows 54% additional price risk to its shares over the next 30 days, with puts outmoving calls by 7 to 1 on option volume more than quintuple the normal level.
AN– Options in AutoNation, the country’s largest direct retailer of new and used cars, showed a similar pickup in option volume to more than 5 times the normal level as shares staged a 5.3% decline to $12.80– within a dollar of the 52-week low. With today’s option volume standing shoulder-to-shoulder with about 15% of the total number of options positions, the preference for protection against a further declines was fairly glaring today given the traffic in July 15 puts. These are trading heavily to the middle of the market, though the 31% increase in premium price suggested buying pressure occurring here. The $2.20 price tag on the right to sell Autonation shares for $15 next month requires a decline past $12.80 just to break even.
KMX – Shares in competitor Carmax staged a 11.2% retreat to $16.00 after , treading a fine line against the 52-week low. Implied volatility at 54.9% shows a fairly astonishing elevation above the 39% historic reading on Carmax stock – though this is a level that has remained fairly stable over the past month. Puts out-traded calls today by a factor of 5 to 1, with heavy volume in June 17.50 puts and what may have been put-spreads in force in the July contract between strikes 15 and 17.50.
TSN– So much for those commodity hedges…! Adding to a list of food companies suffering under the weight of put buyers (albeit for different reasons) we can add Tyson Foods, where news of a Fitch downgrade of its debt to junk status sparked an abrupt 18.5% spike in implied volatility to 51.4%. This has volatility at its highest level since the pre-earnings spike in April as shares set a new 52-week low with an 8% decline to $13.68. Interestingly, this is occurring in concert with twice as many calls trading as puts. With two-way traffic in July calls at the 12.50 and 15 strikes, and outright buying at the October 15 call level, call buying may be evidence of traders reckoning on a slight recovery in Tyson’s share price heading into the fall, or perhaps using calls against a short position in the stock as a hedge – something Tyson apparently isn’t doing too well, if Fitch’s assessment is to be believed.
