Today’s Tickers – RIMM, GOOG, AAPL, AZN, GE & STLD
With no relenting in bad news on Friday following Asian and European follow-through to the financial sector turmoil, and with fresh prognostications from commentators most bearish, it felt appropriate that today would be the day that investors finally through in the towel. Selling pressures capitulated during the morning before the indexes turned to the black. Still it’s early in the day – at lunchtime – and traders’ psychology could easily take another drubbing. But the Fed’s actions along with those at other central banks have to a large degree eased the credit crunch. Liquidity problems are abating and those banks will continue to pour oil on the wheels next week.
Legendary Hong Kong based investor and author of the Gloom, Doom and Boom Report, Marc Faber announced the onset of a bear market and forecast bear-sized losses for Research in Motion, Apple and Google. Did options traders agree? Let’s see.
RIMM - With shares down more than 3% in line with the broader market slump, option volume in the Blackberry maker picked up to more than 61,555 contracts, equivalent to about 8% of its volume in motion. With shares at $208.41, we saw calls and puts move at a fairly even clip, indicative of a move toward volatility positioning to echo the broader markets, with what looks like brisk buying and selling of the August 200/220 strangle.
GOOG – Google – Seeking a bright spot in an otherwise mucky trading day, look to the search engine. Bucking the trend in broader markets today, Google shares are up .15% at $515.51, with option volume equivalent to more than 10% of its open interest in play. Calls are outmoving puts by a factor of one and a third. Implied volatility stands at 24.8%, against historical volatility of 27.5% for Google share prices, so it’s interesting to note that market actually positioning for less variance in prices going forward. Heaviest volume was seen in the August calls, where the 520 strike traded more than 10,000 times at a face price of $4.90, and the 530 call attracted volume of 7,700 lots.
AAPL – Shares in Apple showed budding signs of upside renewal at mid session. After slumping as much as 2% in early trading, by midday Apple shares had recouped losses and were trading flat at $126.33. Today’s low market the weakest price in five weeks. More than 350,000 option contracts were put into play, with twice as many calls moving as puts on modestly discounted premiums. Heavy volume was seen in the August calls, where more than 30,000 lots traded at the out-of-the-money August 130 and 140 strikes. Seems that options traders are less bearish than Faber is.
AZN – Astra Zeneca –Yesterday’s preliminary endorsement by the FDA of its two heartburn and acid reflux remedies, Nexium and the over-the-counter Prilosec, followed a surge in option interest as markets were surprised to learn that the drugs had been under review. Today, AstraZeneca shares are down 2% at $47.60 in another high-volume options day for the European drug maker. More than 5,550 contracts are circulating at more than 4 times the daily average, with today’s positioning almost exclusively on the call side at the January 55.0 strike.
GE - The heightened air of broader market volatility has sent option traders flocking to large-cap favorite General Electric (GE), whose share price activity may be regarded as shorthand proxy for anticipated movements in the Dow. With shares down 2.25% today at $38.05, traders put more than 110,000 GE options in play, with calls out-moving puts by a factor of 1.7, largely in-line with the overall ratio of outstanding calls to puts.
We observed what might have been call spread activity in the front month series, at the 37.50 and 40 strikes, in step with short-term market volatility. Premiums on the put side have doubled on many strikes today, with the September 35 put trading more than 8,500 times. Elsewhere on GE’s calendar, we saw heavy buying in the December 40 call, where more than 28,000 contracts moved at a price of $1.57 – down more than a buck from its asking price 2 weeks ago. Heavy build in open interest over the past 5 days in GE’s December 40 call looks to us like an implicit vote of confidence for longer-term settling GE shares. Upside exposure at this strike price is a bargain today.
STLD - We observed an unusual uptick in volume and firmly bullish option positioning in Steel Dynamics (STLD). Shares in the industrial steelmaker are up 4.5% today, with options trading at more than 6 times their average frequency. With the underlying share price at $39.04, we noted brisk activity in the November 30 calls, where some 6,500 lots traded at premiums of $9.20 – investors paying nearly a quarter of today’s share price to lock in the right to buy shares at $30 by year’s end. Implied volatility on these options stands at 53.50%, just a hair above the 51% degree of up-and-down fluctuation that shares have shown in the past. Last month the company announced a multimillion-dollar investment to increase its steel production capacity to 2 million tons a year by 2008.
VIX – Volatility is up 3.3% at 27.44 in the CBOE Volatility index while the VXN, measuring implied volatility across the Nasdaq market is 0.3% firmer at 26.31. Both readings were around 10 percent higher earlier in the morning.
By 12:30 pm the Dow Jones industrial average was 0.1% lower at 13,255.00. The S&P 500 index was 0.23% higher at 1,456.21 while the Nasdaq composite index dropped 0.14 per cent to 2,552.92.
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