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Monday, February 26, 2024

Trash in Drugs Sends Genzyme Lower

Today’s tickers: GENZ, AGO, UUP, PALM & DIS

GENZ – Genzyme Corp. – – A hot topic in the last few minutes has seen shares of biotech company, Genzyme slide by 5% to $50.50 with the AP reporting that the FDA has found tiny particles of trash in Genzyme made drugs, which according to the article says “bits of steel, rubber and fiber in drug vials could cause serious adverse health effects for patients. Option wizards were quick to pounce on the opportunity to sell rapidly deteriorating call options in the December 50 and 55 strike prices. While this could be the work of frantic bulls trying to get out of the way of a potential sandstorm it’s more likely the case that trigger-happy bears have been awakened. Ahead of the news the December 50 call traded lightly during the morning at a 4.70 premium before slumping to 2.30 on volume measuring a couple of thousand contracts, while the 55 strike fell from a pre-breaking news premium of 1.85 all the way down to 70 cents. While the situation has stabilized, option implied volatility across the field is up around 25% at 42% today. That’s something for call-writers to pay heed to.

AGO – Assured Guaranty Ltd. – – Shares in the bond issurer are 14.8% higher at $20.77 and broke right through the 52-week high after Moody’s lowered its insurance financial strength rating on the company from Aa2 to Aa3. In a statement the company expressed its delight in having maintained a double-A rating in the current economic climate. It also noted that Moody’s number-crunching of its insured residential mortgage exposure was conducted under a pretty dire scenario and was based on “an extremely pessimistic view of the future performance of residential mortgage exposure.” The company boasted that even on this worst case scenario its $12.5 billion claims paying resources are more than sufficient to meet projected obligations. The options activity confirmed the bullish jump in Assured’s share price. Using the December contract investors established 11,000 bullish bought call options at the December 22.5 strike price indicating further bullish moves ahead. The 1.40 premium would require the share price to rise a further 15% to reach breakeven at expiration. Curiously the call buying frenzy caused options implied volatility to rise from 69% to 75% today. Options volume of almost 30,000 contracts is around nine times the usual on the stock.

UUP – PowerShares DB US Dollar Bullish Fund – – Once again options action in the dollar index fund catches our eye. The dollar index itself is down 0.3% at 75.45, while this ETF, which allegedly tracks its performance, is down 1.9% at $22.36. No one ever told me this was a leveraged fund, but its own volatility lives in a world of its own. However, the soon-to-expire November options that saw swollen open interest the size of a small African nation last week, are heavily offered this morning and are being sold actively at just five cents. So far it looks like longs are ditching about 23,000 lots of a massive 261,000 established positions for fear that shares in the fund don’t stage a rally that would lift them above $23 by this time next week. Given the recent shenanigans, that may or may not require a rise in the value of the dollar index. It also appears that the pessimism spread to the same strike in the December contract where the action appears to have been inspired by sellers. Some 40,000 calls have changed hands, while open interest is 250,000 lots.

PALM – Palm Inc. – – Trader talk – and we have no confirmation – is doing the rounds that Finnish handset-maker Nokia may bid for Treo-maker, Palm. Its shares are up 5.3% and the call options brigade is busy trying to set the world alight with bullish plays. The November 12.5 strike calls, already home to 13,354 bullish positions, saw 12,250 further bullish bets placed as the shares neared the striking price at $12.05. Premiums at the strike more than doubled and have traded between 24 and 52 cents so far in the hopes that a bid will be emerge imminently and that it would see Palm valued at more than $13.00. The 52-week high at $18.09 was established in late September. Today’s underlying volume looks uninspiring at 8.5 million. Uncertainty as measured by the reading of implied volatility ticked up only slightly on the rumor to 89%.

DIS – Walt Disney Co. – – A beat on both revenue and net income estimates was good enough to boost investor appetite for shares of theme park and cable operator, Walt Disney as its price rose 4% to $30.21. Using January at-the-money calls, one option investor made a substantial trade and appears to expect shares to continue beyond today’s 52-week high, as he bought around 8,000 calls at the 30 strike for a 1.45 premium. The breakeven at $32.45 would require a share price gain of just 7.5%. ESPN and Disney channels helped boost cable revenues at a time when those of competitors are coming under severe stress. Analysts lay the better than anticipated all-round performance at the hands of pro-active management and cost-cutting measures.

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