Today’s tickers: EP, RIMM, JAVA, SIRI, EAT, VIX
RIMM – The Blackberry Pearl is fitting like a Cinderella shoe for Research In Motion – and the tech ticker’s shares look poised for a run! RIM share prices have boomed recently on bumper earnings, takeover mutterings involving the likes of Microsoft, and most recently new line of colors and features for its Blackberry Pearl smart phone. Reports that rival Motorola is in cahoots with its recent acquisition target Good Technology to develop a mobile e-mail service to compete head-to-head with the Blackberry maker barely caused a ripple in RIM’s utterly charmed share-price trajectory today. This morning’s 3% gain in share prices to $85.58 has lent added cachet to its option series, with nearly 60,000 contracts play, but of note to us is the past week’s big build in open interest in the January ’08 calls. The 100-call strike has witnessed a more than threefold increase in open interest over the past five trading days, suggesting a huge upside move in RIM share prices after New Year. The 4,350 lots that traded here today were logged to the middle of the market at premiums around $6.10 – up more than 25% in price, thus implying a break above $106 for RIM shares by January’s expiry.
EP – Following today’s intraday record price in crude oil, with $80 well within range, we’ll continue to monitor activities in all-things oil-related for the remainder of the session. Pipeline maker El Paso Corp is seeing booming volume in the January ’08 contract, with interesting spread activity occurring in the January ’08 contract. With shares trading flat at $16.20 at the noon hour, the heaviest volume occurred in put spread activity at the January ’08 17.50 and 20 puts, a position that can be entered today at a net cost of $0.65. Call-side activity in the same contract saw 12,500 lots at the 17.50 sell to the bid, while 10,000 lots in the 20.0 calls were bought on the offer at a quarter apiece.
JAVA – Sun Microsystems –The early 411 on tech stocks was ambivalent today before the bell, owing to a Texas Instruments warning on Q3 sales, but tech issue Sun has shrugged it off with a 1.75% gain share prices to $5.80 today. Options traders have put 41,500 contracts in play, with calls out-moving puts on elevated premiums. Heaviest volume has tended to the January contract, where a glut of more than 14,000 lots traded to the puts at that month’s 7.50 strike. Heavily trafficked call-side strikes in the January contract included the 5.0 (5,400 lots traded) and 6.0 (4,300 lots traded), while volume in excess of 1,250 lots was reported as high as the 9.0 strike.
SIRI – Sirius Satellite Radio is basking in a 7.5% gain in share prices to $3.56 this morning, thanks in part to good vibrations from a joint interview appearing in a major business magazine this week with the CEO’s of Sirius and XM, touting the cost synergies to be gained if their controversial merger is allowed to proceed. It appears that option traders are positioning for a big jump in Sirius share prices to the $5 mark, with heaviest volume in the March 5.0 contract. Nearly 12,000 lots traded at this strike in the March contract, despite the fact that options traders are wagering on just a 28% chance that this call will land in the money come next spring.
EAT - Brinker International, a midcap S&P component, and the parent company of a host of so-called “casual family dining” chains, including Chili’s and Romano’s Macaroni Grill, saw an uptick in relative options volume. With shares down 2.7% we observed volume of more than 15,250 contracts in play – this against total open interest of just 27,300 lots total. Volume was heaviest at the October 30 strike, where virtually all of today’s volume was seated.
VIX – Finally, volatility showed a Zen-like contraction today, shrugging off concerns that yesterday’s triple-digit Dow rally might see an inclination to profit taking today, and despite an intraday surge in oil prices. The index is down 1.46% at the noon hour, with 80,000 options on the volatility index favoring front-month calls at strikes as high as 35.0. Given the similar volumes involved, there may even be strangle plays occurring at the 22.50 and 25 strikes.
Andrew Wilkinson
Senior Market Analyst
Rebecca Engmann Darst
Equity Options Analyst
ibanalyst@interactivebrokers.com
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