Today’s tickers: GFI, SPLS, NSC, BG, GE, POT, MOS, RIO, MAR, PTEN, NSM & MET
GFI – Gold Fields Ltd ADR. – The slide in the price of gold (down 5.2% to $840 per ounce), has helped drag down ADR shares in Gold Fields. There was also sizeable activity on the call side in its options where the January contract is in play. The 15 calls witnessed heavy action and appear to have been sold 32,400 times at a 25 cent premium. The existing open interest of 86,123 contracts could be behind what might be a closing sale, but we can’t tell. The delta on the call indicates a one-in-eight chance of shares reclaiming the $15.00 price by expiration. The price at which these calls recently traded was 60 cents in the last two weeks. Higher up at the 22.5 and 25 strikes it appears that a seller was behind volume of 5,000 lots at each strike.
SPLS – Staples Inc. – With economic data weakening seemingly by the minute, option traders seem to be leaving clearer footprints in the option market. Office supply retailer Staples saw its shares down 3.3% to $21.40 today while the October 20 strike put has been purchased on relatively heavy volume of 15,217 contracts. The stake represents 11% of overall open interest on Staples, while it towers the prevailing open interest at the strike of 1,184 contracts. In the November contract it appears that there was also plenty of buying interest at both 17.5 and 20 strikes were total volume of around 3,900 lots was evident at both strikes. This looks like fresh buying judging by the lack of existing open interest.
NSC – Norfolk Southern Corp.– With agricultural stocks in freefall and a weakening of the labor picture adding to fears of a broader slowdown, shares of railroad companies had an especially bad day. The result was a surge in implied volatility of 26.2% to 70.7% on options in NSC with its shares down 13.6% to $56.31. In play today it appears that a long strangle might have been put in play with the October 55 puts being bought as were the October 65 calls. Historical volatility on the underlying share price is a shade under 50%. The aim of a long strangle is to benefit from rising implied volatility and a possible sharp move in the share price of the underlying. A combined 4.10 premium on the strangle would imply a break out of the $51.00 to $59.00 share price. Today’s decline sees Norfolk trading at a six-month low and 32% beneath a September peak of $75.00.
BG – Bunge Limited. – Grain and farm business operator Bunge took a shot in the neck today with shares in freefall and last trading down 18.6% to stand at $51.22. Implied options volatility jumped 25.6% to 93.7% as market makers lifted the cost of doing business in these options in what has been a bad day for anything remotely related to agriculture. To put the volatility gain in perspective we can look at the October 60 strike straddle, which adds the cost of the at-the-money call and put as of yesterday’s close. At a combined premium of 8.85 on Wednesday this long straddle showed investors were prepared for shares to remain within a range of $51.15 to $68.85 before expiration. That same straddle today, due to the relative rise in premiums now predicts a range of $47.40 to $72.60.
GE – General Electric. – Investors are in no mood to take the latest Buffett seal of approval to heart. The issuance of an additional $12 billion common stock on top of the $3 billion preferred yielding 10% might be a valuable proposition to the Sage of Omaha, but it doesn’t help the tailspin that the announcement put the shares into. The $22.50 new issue price was a 105 discount to yesterday’s share price, but alas that’s no longer the case with the investors now faced with a premium to fulfill their pre-emptive rights. Options trading Thursday is once again extremely active according to our scanners with a pre-noon volume of 162,000 contracts. The put/call ratio of 1.40 favors calls but the picture is muddied by the direction of options. The October 22 strike puts were largely sold, while at the November 23 strike out of an overall 23,000 in play this morning, 12,200 traded to the mid-price while 5,900 were bought. The October 15 puts were largely purchased at a premium of 18 cents.
POT – Potash Corp of Saskatchewan – A Merrill Lynch research report blaming lower phosphate prices, a peak in nitrogen prices and a less than expected increase in those of potash has cratered several related companies share prices today. POT is down by 20% at $101.50. Some 52,000 options are in play and rank high on our market scanner.
MOS – The Mosaic Corporation – MOS is suffering alongside POT being downgraded to underperform at Merrill Lynch. A weakening in the share price by 31% to $46.61 has created option interest of 49,000 contracts this morning.
RIO – Companhia Vale do Rio Doce ADR – Pick your reason today for a decline of 10.4% in Vale’s share price to $16.70 – weakness spilling over from the Merrill report, strength in the dollar harming commodity prices at large, a decline in the price of gold, or simply a meltdown in investor confidence. Option traders are prone to some rebound talk but the pattern is overall bearish. The November calls were bought at the 17 and 19 strikes but the well out of the money 25 calls were sold among volume of 8,365 lots. Meanwhile the October 15 puts were bought on 3,900 volume while in the November contract the 15 and 17 strikes were popular venues for fresh buyers who paid premiums of 1.64 and 2.59 respectively in search of downside protection from the fallout.
MAR – Marriott International – Options volume is four times the typical daily average on Thursday, but this is largely due to a put spread in the October contract between the 25 and 35 strikes. Shares in Marriott are just a little lower at $24.92 despite announcing a 28% profit drop earlier. The share price performance is admirable in the face of the company’s warning of weaker spending and the deepening impact of the credit crunch on its customers. This is a curious trade since it took place with shares at the lower strike. With implied volatility actually coming in a little from recently elevated readings it’s possible that an investors is calling a bottom on the stock and is taking a credit on the trade b selling the 35 strike and buying the 25 strike for a net credit of 9.0 points. A rally towards the upper strike would erode the value of the short position faster than the value of the long lower put.
PTEN – Patterson UTI Energy Inc.– Shares are sharply lower for this utility company, which at its peak in June was trading as high as $37 per share. That compares to $16.80, which also creates a 52-week low beneath the low set in January. Option implied volatility is close to 100% given the apparent uncertainty surrounding the company. The total option volume today is relatively high compared to the average. What we believe we saw an investor do today was implement a long straddle at the October 17.5 strike for a net premium paid of 2.90. We can see calls traded to the mid and ask price, while the puts were certainly bought. This infers investors are looking for more volatility to come in the share price and would benefit if the price broke above $20.40 or beneath $15.60. Today the company announced the current number of its operating rigs, which appears to have unsettled investors.
NSM – National Semiconductor Corp – With options volume today already five times the norm, the picture on NSM is grim. Shares are lower by 4% at $16.04 while sales of January calls at the 17.5 and 20 strikes accompany the purchase of October puts at the 15 strike. The pattern is all-round bearish today.
MET – Metlife Inc. – Implied volatility on this insurer is among the top options implied volatility gainers for the second day in a row, rising 36.5% to 133.1% while shares are down 12.8% to $41.95.
