The $700 Club: gPhone talk sets Google calls, share price abuzz
Today’s tickers: VIX, GOOG, LIZ, FMCN, ANR
VIX – With leading indexes down narrowly in anticipation of the Fed rate announcement, volatility has taken a catbird seat in the minds of investors. The VIX index is showing a 4.5% pull ahead to $20.78, with traders flocking to buy the November 25 calls, where nearly a third of the active volume so far is centered. These calls were bought on premiums up more than 15% on the session to $1.10. It’s possible that some of this volume is tied up in call spread activity with the November 35 calls, which traded to the middle of the market at $0.30 apiece. A spread trade of this nature implies a break above 25 within the month of November, not to exceed the August highs near 35 – a scenario that seems plausible if the Fed fails to appease the market with another juicy rate cut this week.
GOOG – Reports that an announcement on its gPhone plans may be forthcoming within the next couple of weeks has sent Google shares up 2.3% today, sitting just under the $700 mark at $694.28. With 98,000 active option contracts moving, today’s volume is equivalent to some 15% of its overall open interest. Calls are out-charging puts by a factor of 1.4, most of it centered in the front month calls at the 700 strike. Interestingly, implied volatility is maintaining its post-earnings pullback, currently sitting at 26% against the 28% historic reading.
LIZ – Liz Claiborne, the maker of the eponymous upscale women’s clothing line and licensee of Kate Spade purses and Juicy Couture reported a 65% drop in Q3 net income and cut its guidance for the year, citing decreasing department store sales and costs relating to the sale of four los-generating brands earlier this year. This was the eighth consecutive quarterly profit decline reported by the Liz Claiborne Company. Interestingly, its shares are up 2.3% to $29.00 at the noon hour, while options are trading on a volume of 8,500 lots. While modest in absolute terms, this volume still matches up against half of the total open interest, and according to our “Hot by Options Volume” scanner, represents 9 times the daily average interest. Traders have hastened to buy November 30 calls on premiums up more than 50% on the session. The anticipation of upside price action in Liz Claiborne shares is perhaps a pragmatic reaction to a share currently trading within 5% of its 52-week low and well below its six-month average – in other words, a sense that the share has bottomed out and is due for a bounce back.
FMCN – Focus Media Holdings – Options in the American depositary receipts of this Chinese advertising firm .39% decline in share price to $62.10 has 143,000 options in play, with what appears to be brisk block trading activity in the calls. A 30,000-lot spread trade looks to have gone through in the January contract at strikes 45 and 60.
ANR – Alpha Natural Resources – A 2.8% decline to $27.57 has options trading at nearly 29 times the average volume today, according to our market scanners. Action here looks like a bear credit spread involving the sale of December 25 calls at $3.70, beginning the transaction with a net credit against the purchase of December 30 calls for $1.25 per contract. Option implied volatility on Alpha Natural Resources options stands at 45%.
Andrew Wilkinson and Rebecca Engmann Darst
ibanalyst@interactivebrokers.com
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