Today’s tickers: CAT, HMY, GE, ACAS, BWLD, GM & GS
CAT – Caterpillar Inc. – The Chinese government’s fiscal stimulus helped inspire a rally in commodity and construction related companies. Heavy equipment manufacturer, Caterpillar saw its shares rally to $40.88 before having to make do with a 1% gain to $38.83. Our market scanners honed in on a large and opportunistic bearish put spread in the December contract where a 15,000 lot transaction went through at a premium of a net 95 cents to establish limited downside protection. The trade involved a long position in the 35 puts and a short position at the 30 strike aimed at providing as much as 4.05 per contract should shares in Caterpillar reach or fall beneath the $30.00 price level by expiration. The recent 52-week low at $31.95 was established on October 24. It would appear that this investor is taking advantage of a market rally to reach for downside protection and has the view that there is only so much that governments can do to stop the rot.
HMY – Harmony Gold – Two large and possibly related option trades were recorded earlier in options on this gold miner. The January 2.5 strike puts were sold at a nickel 26,600 times, which possibly marked the closing sale of a long position of similar size at three times the premium on October 17. At the same time an investor plumped for a fresh position at the May 2.5 strike puts on volume of 13,500 contracts at a premium of 30 cents. It’s likely that the investors was rolling forward downside protection perhaps inspired by the rebound in metal prices today.
GE – General Electric – Another put spread traded on this big name today and seemed to help weigh on the share price. The December 17.5 puts were sold 19,000 times while the lower 12.5 strike was purchased against it. The net credit to the investor in this case was 75 cents per contract. The trade might have been inspired by an investor short of stock and looking for extra yield. In this case the investor would have to purchase shares at the 12.5 strike price is assigned and would of course net any capital gains from the short sale price in conjunction with the credit from the option trade. Shares were 1% higher at $6.96.
ACAS – American Capital Ltd. – A couple of years ago the company, which deals in IPOs, spun-off a European unit. Today thanks to the credit-crunch the company noted the limitations on the benefit of the unit remaining listed and decided to bring it back under parental supervision. American Capital also suspended its dividend payments and in response its shares were hammered by 32% to $9.33. Accordingly investors sought the protection of November 7.5 puts, which attracted fresh buying. Open interest at the strike of 1,183 was easily surpassed on volume of 1,955 today where investors forced premiums 500% higher to 60 cents. Implied volatility jumped 16% to 136%.
BWLD– Buffalo Wild Wings Inc. – New York regional fried chicken diner announced below par earnings last week and today its shares continue to suffer with a 6.5% decline to $22.60. Options on the company, where only 32,540 outstanding positions exist, were relatively active on volume of 7,132 contracts. We’re unsure of today’s investor motivation, we have to admit, especially in light of today’s trade report. It shows 3,432 November 22.5 strike puts were sold at an average price of 1.0, which would imply a bullish outlook for the shares and a breakeven at $21.50. Once again an investor could be successfully short of stock and looking to enhance yield. Today’s trade size is approximately three times the existing current open interest at this strike. The picture is further muddied by the purchase of deep in-the-money December puts at the 35 strike where some 2,302 lots were traded at approximately 13.00 each.
GM – General Motors – While it does matter whether the government bailout package extends to your company, what matters most is how much it applies to you. In the case of most financial companies the government’s capital infusion is significant in shoring up overall capital, but in the case of the auto-industry it could be more of nationalization than an infusion. And so it goes that some analysts have concluded that the target share price for GM is not higher in the event that any deal goes through, but that it will be lower. We have heard two separate reports with targets for GM stock at $1.00 and zero dollars. Investors have kept options activity in the stock extremely heavy today with 130,000 contracts in play. Investors are concentrating their efforts at the deepest put strikes they can find but the price of protection today is strongly impacted by a 44% increase in the reading of implied volatility, which now stands at 318%.
GS – Goldman Sachs – A fresh 52-week low at Goldman has once again inspired decent option activity. Shares are currently lower by 8.3% at $71.30 and our scanners indicate continued buying at the November 70 puts adding to a build in open interest at the strike last week. In addition we’re seeing fresh positioning at the 35 strike where volume of 1,665 eclipses investors’ existing stake of 1,206 contracts.
