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Visa Traders Turn Call-Sellers After Regulatory Change

Today’s tickers: V, VIX, SY, TIVO & MDR

V – Visa Inc. – The decision to allow the Federal Reserve to regulate and therefore pressure fees charged by debit-card companies hampered shares at Visa today and in late morning trading they are 8% lower at $79.00. The slide slices the share price right through two five-dollar-wide strike prices and with options expiration next weekend, call sellers were quick to capture premiums available at the May 80 strike where 10,000 contracts have traded within a price range of $2.32 to $1.18. At its present share price those call options are worth nothing but the hope value they carry in the event of a recovery next week. Investors also boosted put premiums from a close yesterday at 73 cents to as high as $3.50 per contract at the May 80 line. Implied options volatility rose a further 8% to 38.7% today as uncertainty for the financial sector grew.

VIX – CBOE Vix Index – As investors’ trading screens once again turn a familiar red as Eurozone fears grow, the flashing red light of the CBOE’s Vix index heads inevitably higher. On Friday the index leapt 17% to stand at 31.33. It’s still well beneath the panic-driven peak of last week when it ran up to 42.15, yet today’s reading is the highest point in between then and now. One investor appeared to extend a bet that volatility is set to remain omnipresent using a 50,000 lot calendar call spread that appears to roll forward protection from May expiration to the June contract. The order combined the same amount of May call options at the 35 strike with June calls at the 37.5 strike. The net cost of the trade was $1.20 per contract.

SY – Sybase Inc. – Option trading indicates little upside room for Sybase after Germany’s SAP said it would pay $65 per share to acquire the enterprise software business. Having shot up from $40 before the deal to more than $65 yesterday option sellers appear to be writing chunks of $65 strike calls in the June and September contracts probably because they expect to see further declines in volatility and little improvement in an already generous deal that boosted the company’s capitalization by 63% in a stroke. The June call options carrying a $65 strike price have traded 13,000 times mainly at a 25-cent premium, while the September contract has traded almost 6,000 times at 35 cents. There also remains the possibility no matter how slim that the deal falls through including the potential for a swoon in global stocks leaving valuations look rich. After yesterday’s bid, options implied volatility targeted the basement falling from 30% to 10%.

TIVO – TiVo Inc. – - During the first week of March, TiVo won a court battle in which it was claimed Dish Networks infringed on TiVo’s digital video patents. Shares that day surged from $10 to $18 and since then rose almost to $19. The shares have not since traded below $15.15. Until now that is. A Federal Court upheld Dish Network’s appeal against and in doing so smashed TiVo’s shares today all the way back to $10.45 for a 40% loss on the session. Option implied volatility remains well-placed at 100% given the wild swings apparent for the stock. May call options premium were crushed with the $12.50 strike diving from $3.00 to 33 cents. Open interest at the strike indicates more than 14,000 contracts banking on the fact there wouldn’t be a re-run of this saga.

MDR – McDermott International Inc. – Much of the 6.5% decline at industrial firm McDermott was intact this morning when an investor placed a 10,000 lot bullish call spread using the August contract. Shares recently ran up as high as $29 but today are languishing at $24.40 but that doesn’t seem to deter a bull taking advantage of a reduced cost to implement the trade. Investors are today resizing the risk premium built into the market as the prospects appear to have dimmed towards global recovery. Check out the four-day slide in the price of oil to measure that, McDermott is a global engineer and construction company, arguably vulnerable to weakness in developments in offshore oil and gas business. The investor appears to have paid a net $1.00 to establish the trade by buying 10,000 August expiration calls at the $27 strike in exchange for the same amount of $31 strike calls. If this investor is correct by asserting that this latest setback is a mere blip on the radar, the trade could pan out well during the summer. For the net premium of $1.00 per contract the investor could make three-times as much if shares resume and extend the not too distant rally.


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