Today’s tickers: ALL, MET, VIX, BSX, GE, MYL, MAS, C, BAC, JPM, XLF, & SNDK
ALL – Allstate Corp. – Implied option volatility rose by around one-third on multi-line insurer Allstate today and reached 57.4% by lunchtime. This marks its highest reading by far in the last 12 months despite a relatively orderly share price slip from $59 to $43.12 in that time frame. Option traders forced put prices higher by leaning on puts across the strip, which resulted in close to five times as many puts in play as calls. The January contract saw volume equal to around one half of its current open interest as investors sought protection against potential share price erosion beneath the 42.50 strike. The premium rose by 40% to 4.0 per contract implying a break even share price at $38.50 at expiration.
MET – Metlife Inc. – Demand for insurance against the insurer saw implied volatility on Metlife options rise 43% to 110% by lunchtime. That compares to a 70% reading on the volatility of the share price, which today has fallen 12.5% to $49.05. Activity in the option series was less pronounced than in Allstate, but notable was that demand for protection from a declining share price was taken in the October contract at strikes as low as $20.00. In fact at strikes from 20 through 35 today’s volume is clearly fresh judging by the fact that it is in excess of existing open interest. In recent days shares in this company hit a fresh 52-week low falling through $45.00.
VIX – CBOE Volatility Index – The bias towards call buying is apparent in the November contract where call volume (indicating confidence in sustained volatility) of 12,000 lots leaves lagging put volume of just about 1,000 lots. In the October contract calls at the 30 and 35 lines are most popular. The October VIX future is trading at 31.65 compared to the official spot index, which at 41.37 is 5% higher than Tuesday. With call activity in the 30-plus strikes, the clear message is that investors are now focusing less on when the bailout package will pass. Instead they are more concerned with the contractionary economic data emerging around the globe and perhaps rethinking the prospect for an early stock market recovery. Fresh buying at the 40 strike call in December tells us that these investors don’t see market volatility softening throughout the fourth quarter.
BSX – Boston Scientific – With its shares already heading towards the $10.76 52-week low, shares in Boston Scientific have lost 7.5% today at $11.35 following an order by a judge made yesterday with a final settlement package leaving the medical device maker on the wrong end of payment of $703 million to Johnson & Johnson. The company claimed patent infringement on a bare metal stent. Option traders seized the opportunity to purchase put options in the November contract at the 10 strike for fear that in light of declining sales and a large debt burden the company might face a single digit share price before long. Investors paid 45 cents for some 12,100 puts on this stock while in the January ’09 and 2015 contracts they also appeared to rush for further downside protection at the same strike. Today’s option volume is close to four times the regular level according to our market scanner.
GE– General Electric. – The earlier 2-plus reading on the put/call ratio for options traded on GE has subsequently diluted, but the same relief can’t be found for the share price, which currently has an 8.8% loss at $23.40. A stark analyst warning over the economic climate has impacted investor sentiment today. Notable option activity occurred earlier as low as the 10 strike and activity at this and the nearby 12.5 strike represent around half of the current open interest investors hold. In that sense there is a rising groundswell of opinion – or at least enough worried investors – that believe that GE is hardly immune from suffering a similar fate to any banking entity. The October 17.5 strike is most popular today with some 12,500 lots in play at a current premium of 67 cents, which is elevated from yesterday’s 8 cent premium.
MYL – Mylan Inc.– Two weeks ago the company received FDA approval for an anti-psychotic drug. Today we see fresh news to buoy the stock, which is trading unchanged at $11.42. However, it’s a haven for bullish option plays this morning as some 18,800 contracts ensures that it appears on our “most active” market scanners. The typical daily options volume is a mere 2,800 contracts. The destination for call buyers today is at the October and November 12.50 strikes inferring a 9.5% pre-expiration rally for the stock whose 52-week low was established prior to the recent FDA seal of approval. Implied option volatility has largely been above 60% since then and today’s 67% reading stacks up against a 55% level on the share price.
MAS – Masco Corp. – Wood product and building material manufacturer, Masco, is lower today by 2% at $17.57, while options activity indicates a more bullish perspective. Today’s activity is seen in the October 20 calls, which have traded 5,700 times at a premium of 35 cents and higher by 17% on yesterday’s value. The company recently moved to increase its dividend but that probably has little bearing on today’s trade. This smacks of an outright bull looking for a build on what could be a double-bottom in the charts.
C – Citigroup – has a 75 gain in its shares to $21.95 while option activity delivers a mixed bag of goodies. The October 22.5 call option saw healthy volume of 16,400 contracts trading evenly between buyers and sellers. The lower 20 and 17.5 strike puts largely traded on the offer this morning indicating some distrust in the rally. The overall 155,000 lot volume today maintains Citi’s position among our most actively traded contracts today. Implied volatility is off its recent triple-digit value at 82.5%.
BAC – Bank of America – Option activity of 70,000 lots makes BoA our fifth most actively traded equity series by noon. A 5% gain for its shares to $36.75 is accompanied by decent buying activity in the November 35 through 40 strikes.
JPM – JPMorgan Chase – Some 50,000 option contracts are in play today as JPM is 2.5% higher at $47.85. Unlike the clarity on positioning in BAC, it appears that there is also distrust from option traders on the strengthof this rally. We note from time and sales data that the October at the money calls were largely sold while the same month 40 puts were in decent demand.
XLF – Financial Select Sector SPDR – Despite a poor showing for the broad market, financial shares are 1% to the better. Action in the XLF still shows more healthy demand for put options on the rally. The October 17 and 19 strikes – with the share price reading $20.11 – have both traded on volume in excess of 32,000 lots. Premiums paid are 44cents and $1.01 at the 19 line.
SNDK – Sandisk Corp – Heavy options volume has shown up in this memory device maker this morning. It would appear that a large spread order has gone through in the January contract involving around 20,000 lots at each of the 17.5 and 22.5 strikes. The trade with a net premium of 2.15 traded to the middle of the market and so masks the investor’s objectives here. The strikes wrap around the current share price of $19.61 and could be a bullish call spread, in which the investor gets long the stock via the lower strike but reduces the premium by taking in that at the higher strike. The maximum profit of the distance between the strikes minus the net premium would yield a gain of 2.85 per contract at a share price of $22.50 at expiration. Given today’s rally in shares of Sandisk this is the most likely positioning.
