Today’s tickers: GM, XLF, GE, HIG, SBUX, FMCN & LBTYA
GM – General Motors – Trading in options on the ailing auto manufacturer was robust with close to 90,000 contracts changing hands by 11:30. Shares made a fresh 52-week low and at the time of writing have shed 17% to $2.80 as option traders piled on more bearish bets against the company. Call options granting rights to buy the stock at prices now above the share price were sold aggressively at the November and December 3.0 and 4.0 strikes. At the November 4.0 strike puts investors bought over 3,000 lots and so reserved rights to sell shares at a healthy premium to the current trading price.
XLF – Select Sector Financial SPDR – With no signs of a let-up in the financial sector, shares are once again taking a beating and stand 3.3% lower at $13.33. However, there could have been some signs of optimism playing out in the deferred expiration dates this morning through XLF options. In the January 2009 contract investors sold around 5,000 put options at the 12.0 strike at a premium of 1.10. Meanwhile they bought similar amounts of out-of-the-money calls at the 21.0 strike for a tiny 10 cent premium. The strategy appears to be a reversal style in the expectation that sometime during the next couple of months the sellers will burn themselves out leaving no option but for a rebound of the survivors. In the January 2010 contract 6,000 call options granting rights to purchase shares at a price of $15.00 were bought at 2.35, while the same amount of puts were traded at the middle of the market at a richer premium of 4.15. While this combination isn’t crystal clear, it does smack of a reversal type strategy with the investing banking on a financial rebound after the wounds have healed.
GE – General Electric – As the pain refuses to heal, for now at least, big names get cheaper and cheaper by the day. Option traders continue to sense further downside in conglomerate GE, where the November 17.0 strike and December 15.0 strike puts are in demand today at a premium of 85 cents apiece. As shares decline 5.2% today to $17.50 they are just a dime above the October low. Meanwhile option traders are starting to lift implied volatility, which is 14% higher at 82% today. In the January contract investors have sold the 24.0 strike calls on 4,000 lots of volume while a further 6,000 lots traded to the middle of the market. The premium here is a slim 31 cents and essentially is a bet against a recovery. However, we should note that a stock buyer could be using this well out-of-the-money strike as a covered call, but it does seem a stretch to do so at such a high strike.
HIG – Hartford Financial Services Group – Within the past two weeks shares in Hartford have traded in single digits for the first time in at least 12 years, before a recovery literally doubled its market cap. Today the picture is more grim and the company has slipped by 26% to stand at $10.78. Option trading clearly favors the downside with nearby contract month put options purchased at the three strikes between the $5.00 and $10.00 share price. Investors banking on a share price decline to $7.50 have picked up more than 2,000 puts each guaranteeing rights to sell 100 shares in HIG. The premium paid at the strike today was 55 cents and so infers a breakeven share price at expiration of $6.95. In the January puts at the 20.0 strike, an investor targeted 1,300 puts at a premium of 9.70 (it’s way, way in-the-money today). The volume is in excess of the open interest at the series ahead of trading, but we can see that these puts were indeed bought. A fresh long position would put the investor short of stock at $10.30.
SBUX – Starbucks – When the world is falling apart at its financial seams, one wonders why the world needs a largest coffee chain at all. But some healthy option activity today seems to suggest that the prospects are not as bad as the 96% plunge in quarterly profits suggest. The cost of reducing the number of its global stores likely plays a role in that throwaway line. With shares targeting the October lows and down today by 3.3% to $9.88 the option trading appears to favor the bulls. The heaviest trafficked call is at the November 10.0 strike price where buyers have been wagering 55 cents that shares will be above $10.55 by expiration next week. Meanwhile our scanners have picked up a credit put spread involving the 10.0 and 12.0 strikes in the December contract whereby around 5,800 puts at the lower strike were bought at a 1.10 premium while the higher strike was sold on a similar amount at 2.40. A rally above the upper strike here would see each strike price expire worthless leaving the net 1.30 premium in the hands of the combo-seller today. In order to break even the investor still needs shares to rise above the lower strike plus the net premium, which occurs at $11.30.
FMCN – Focus Media Holdings ADR – The Chinese media giant saw its shares halve in value after it reduced earnings guidance from 57 cents this quarter to 46 cents per share. As its shares slumped to $8.28 option traders reacted by selling the November 10.0 strike call from as high as 1.10 to around 50 cents per contract. Implied volatility rose to 163% on the shares. Elsewhere the January 7.5 strike puts were heavily sold at a premium of 1.20 indicating some confidence from investors that shares have a base in sight. Losses would accrue beneath $6.30. Today’s heavy volume here and at the January 10.0 strike price is fresh investor interest since virtually no other positions are open at either strike.
LBTYA – Liberty Global Inc. – Some interesting option volume appears today in media giant Liberty, where an investor might be banking a handsome gain on a long put position established in mid-October. The company’s shares have fallen 5.8% to $14.60 today, while the option flurry occurred in the January 15 strike put series. Open interest on the entire contract is about 100,000 with 63,000 at this line. Today volume of 16,000 appears to have traded to a mid-market price, but is in line with the size of position established around one month ago when shares where trading at $17.96 at which time puts were bought at 1.55 premium. Today’s transactions at a premium of 2.25 could well be a closing sale against a bearish stance on the stock.
