Today’s Tickers – KO, HD, VIX, SBUX, OIH, IVGN, POZN, XHB, SOHU & XLF
KO - Option buyers in Coca-Cola (KO) flocked to the September 55 calls, where upwards of 22,000 lots traded today – more than half the day’s total moving volume. The development followed today’s news that the cola giant that it plans to buy and consolidate seven German bottlers representing 25% of the German soft drink market. Coke shares rose 0.58% today, trading this afternoon at $53.57. A sign of bullish sentiment in the market to be sure – Coke is a share that is perhaps, at long last, picking up a bit of fix, after broadly underperforming both the S&P and its consumer staples index since the bottom of the bear market in late ’02. Recent financial reports have seen postings of growth in beverage diversification and its international divisions.
HD - Options in Home Depot (HD) broke into the elite league of top five movers by volume, thanks to volume involving 90,000 lots on both sides of the August 45 strike. With the calls on this strike trading at a bargain 0.05, against 7.10 for the puts, this trade is too far out of the money to be a straddle, unusual activity that mirrors trading we saw on Monday and ascribed to risk-reversal strategy by a trader wishing to be long Home Depot stock, and doing so by buying cheap calls funded by the sale of deep-in-the-money puts. We are uncertain what may be occurring here, but are continuing to monitor the situation.
VIX – The CBOE Volatility index has retreated from Wednesday’s peak of 26.22 as investors braced for ‘peak-selling.’ Although a sense of calm returned as the Dow rang up a 1.1% gain to close the session, the VIX remains notably elevated and is now set to close above a value of 20 for the sixth straight session. Some 40% of today’s 121,500 volume was lodged in calls at the August 25 strike where nearly 48,000 contracts changed hands by 2 pm between prices of 1.15 and 1.40. Judging by the fact that the VIX is lower by 5% today while index values are mixed makes it hard to tell whether investors are stepping back or adding new positions.
By 11:30 the Dow Jones industrial average was 0.04% lower at 13,364.20. The S&P 500 index fell by 0.30% to 1,461.58, while the Nasdaq composite index added just 0.20 per cent to 2,559.89.
SBUX - Starbucks bulls continue to graze on call options on the stock following Wednesday’s earnings release. Options volume of 82,000 contracts stands out in a relatively quiet day for options trading. Shares in the world’s largest coffee-chain are a little lower at $27.09 and that compares to a short-covering spike at $28.50 about one week ago. Bulls might have been encouraged by the fact that price action filled a price gap on the chart down to $26.54 on Monday. Options traders have bought almost twice as many calls today as puts, affirming a perceived positive outlook for the company.
Investors have to weigh the balance of events following an announced 20% rise in revenues and record store openings for the chain against the admission of rising dairy costs and the clear evidence of lower priced competition notably from rivals such as McDonalds. Arguably, failure to deliver new strategic initiatives to combat such competition could result in a decision to lower in-store prices, which investors wouldn’t welcome.
Today it was the 30 strike that piqued investor interest in several months, with January taking top volume price with more than 11,000 lots trading by this afternoon. The October strike traded 4,400 contracts, which was nearly twice the volume at the same place in the September series. High volume was registered also at the money in August with more than 9,000 calls trading at the 27.5 strike at premiums between 1.0 and 0.5 implying breakeven into expiration of as much as $28.00. Traders see a 43% chance of that happening just now.
OIH - Shares in the Oil Service Holders Trust retreated another 2% to $171.66 today, in line with a downtrend following the trust’s peak last Tuesday at $188.26. With nearly 79,000 option contracts in play, volume has clustered at the August 170 calls. These contracts traded 12,700 times today at prices between $5.80 and$ 6.10 – a week ago, these same calls were selling for $20.16. Another 11,000 lots traded at the August 175 call on discounted premiums. Put-side volume has favored the August 175 strike, where 7,500 lots traded. The market is currently pricing in 33.5% volatility for these options.
IVGN - Shares in Invitrogen are up 8.6% today at $77.24 after the company – which produces equipment for use in genetic cloning – reported a doubling in Q2 income. Options traders have put more than 8,434 contracts in motion. Today’s volume includes more than 2,000 lots traded at the August 70 put on sharply discounted premiums. With implied volatility at 26.5%, traders are pricing in just 5% more volatility in this biotech than its shares have shown historically.
POZN – Pozen Inc. – A 45% slide in share prices earlier today sparked options traders to put 50,000 contracts in motion – more than 20% of its total open interest and nearly three times the average daily volume. With shares at $10.00 this afternoon, volume is heaviest at the August 12.50 put, where more than 6,500 lots traded on premiums up 114% on the day.
XHB – S&P Homebuilders ETF – The current turmoil in the home mortgage and homebuilders sector has taken root in increased volatility – attracting options traders to this sector ETF. Nearly 27,000 contracts are in play today – more than 10% of the fund’s total open interest and 3 times the daily traffic. Though premiums sharply favor the call side today, volume is skewed to the puts, thanks in large part to the 27,000 lots traded in the December 20 put.
SOHU – Sohu.com Inc. – Shares in this Chinese tech stock are down 3.4% today at $32.83, with 10,748 options (equivalent to more than 20% of its open interest) circulating. Volume has been pronounced at the August 30 straddle, while the August 35 put has traded 2,000 times today. Total open interest in Sohu.com continues to favor the call side by a factor of 1.5.
XLF – Financial Select Sector ETF – With an 0.18% gain in the underlying share price today $33.33, 336,500 contracts in the financial sector ETF are in play today, with six times as many puts moving as calls. More than 134,000 lots have been loted to the September 32 put. Heavy traffic is also apparent in the December puts, between the 30, 33, 34 and 35 strikes.
Andrew Wilkinson Rebecca Engmann Darst
Senior Market Analyst Equity Options Analyst
ibanalyst@interactivebrokers.com
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
