Today’s tickers: GFI, GDX, FRX, BP, CPN, ITMN, S
GFI – GFI – A newly begotten verve for the U.S. dollar sent gold prices scurrying to a three-month low, and stocks of most gold producers suffered as a result. American depositary receipts in Gold Fields Ltd, the world’s fourth-largest gold producer, lost more than 8% to $9.25 as the 15,000 option contracts active on its ADR’s qualified the ticker for our scan of early morning movers. Here traders appeared to play against the current price ride and position for a bullish reversal into the fall. One trader bought a long October call spread involving out-of-the-money 12.50 and 15 strikes at about a 7-cent debit. The break-even here requires a gain of more than one-third of Gold Fields’ current share price. Opening call-buyers also targeted the 12.50 strike in the January ’09 contract. Volume at the 7.50 put strike and 20 call strike may have been used to fund this activity, or may have been unrelated. Gold Fields shares have traded as high as $19.52 over the past 52 weeks – a look at open interest indicates that traders hold almost 4 times as many call positions as puts in the company.
GDX – Shares in the Market Vectors Gold Miners fund also bled 4.5% of its value to read $37.17 over the noon hour, but option traders instinctively bought August 37-strike calls on the pullback, paying $1.20 per contract for the right to buy the gold miners’ index at $37 per share next Friday. We should note here that call open interest has swelled in recent weeks, up 80% since July 21, and now dwarfs put open interest by a factor of 2.4.
BP -Options on the American Depositary Receipts of UK-based oil and gas company BP PLC are active today, hours after the company announced that it would have to halt production at two major oil and natural-gas fields it operates on the Caspian Sea due to fires resulting from explosion on a key pipeline that courses through Turkey. The news flow caused a ripple in its option activity sufficient to qualify for our scan of most actively traded options. The action shows traders selling volatility against the current price action in the stock, with August 60 puts selling freshly in excess of open interest at $1.40 per contract. This could be an attempt to reap the benefit of higher volatility (implied volatility on all BP options at 30% compares to a historic reading of just under 26%). We also observed a 2,000-lot call spread trade in the January ’09 contract between the 60 and 70 strikes with no information as to the order flow. A bullish buyer of this position would have paid a $3 premium in the expectation of shares moving past $63 by January, while a bear would take the $3 as a credit, expecting no new move above $60. It should be noted that BP PLC shares are down about 18% for the year to date – due mostly to its unmitigated $16 drop from late-May price levels.
FRX – – Takeover speculation may be driving the options activity in Forest Laboratories, the maker of the antidepressant Lexapro as well as drugs for high blood pressure and Alzheimer’s disease. Shares are 2.3% higher at $38.24 as we report an increase in option trading volume to nearly 7 times the normal level. This is occurring at the August 40 call strike, with call interest extending into the September contract at strikes 40 and 45. Implied volatility on all Forest Laboratories options rose 11.4% to 37.4%, which shows a marked elevation above the 29.3% historic reading on the stock, implying greater perceived risk of share price turbulence informing current option prices. Forest Labs has traded as high as $43.38 over the past 52 weeks.
CPN – – The options market is taking a practice swing at Monday’s pre-market quarterly numbers from independent power producer Calpine Corporation. Shares are down 1% at $15.66 and the 64.4% implied volatility reading shows a market elevation above the 54.6% historic reading on the stock – suggesting heightened risk of yet more share price turbulence from a company whose shares have seen a 30% drop since July 1. An increase in options trading to 8 times the normal level led to the discovery that option traders are steering clear of the earnings-sensitive front month and positioning instead in September 22.50 calls, many of which have been bought in the 15-20 cent range today. This price level reflects about an 8% probability of Calpine shares retracing those July losses completely.
ITMN – Shares in pulmonary biotech Intermune rose 3% to $17.30, capping off a very strong period of share price appreciation this summer – shares have gained 31% since July. Some option traders may be taking the opportunity to wager on more subdued price action heading into the fall, with these bets sending option trading volume to more than 7 times the normal level. It appears here that a trader sold the October 15/22.50 strangle for a combined $2 premium, taking that credit in the belief that Intermune shares will trade between the range of those strike prices into mid-October. This would appear to rule out upside much beyond its 52-week high of $22.37.
S – Sprint-Nextel – Shares rose 3.8% to $8.09 on news that the company is cancelling an issuance of convertible preferred stock. With about 18,000 lots trading in the first half hour of the market, calls are outmoving puts by 3.7 to 1, with particular interest in September 9 calls, and in the November contract at the 8 and 9 call strikes, all of which are being bought, and 7 put strike, which sold off in early trading.
