Today’s tickers: DF, FDG, MSTR, NRG, GOOG, VIX
NRG – NRG Energy – Bullish call-side plays have sent options volume in Texas’ second-largest power producer to 38 times the average volume, and with more than 311,000 options in play, it’s one of the day’s absolute most liquid series as well. Shares in the company are flat-to-lower at $45.49. More than a third of today’s volume has been tied up in buying of the March 45 calls, while the January 35 calls traded to the middle of the market at $11.50 apiece. Last month the company submitted the first building application for a new nuclear power plant in three decades. According to the company’s filing with the Nuclear Regulatory Commission, the new plant is to be based in Southern Texas, powered with boiling water reactors from General Electric. The going price for those March 45 calls implies that traders are largely optimistic about the impact of the new plant on NRG’s share price, pricing in at least a 5% premium from the standing 52-week high by March.
DF –Something’s abuzz at Dean Foods, the maker of Land O’Lakes, Horizon Organic products and International Dairy coffee creamers…Shares are nursing a 3% gain to $27.80 with about a week until earnings, sending option volume to 31 times the average, virtually all of it centered in calls. More than two-thirds of today’s active option volume is centered at the November 30 strike, with the market pricing in a one-in-four chance that Dean Foods can deliver on better earnings and price action into November. The current share price reflects a 14% improvement from its 52-week low. The company is also one of the top implied volatility gainers, according to our scanners, with a 29.3% leap to 45.3% overnight – common for a company on the eve of earnings.
FDG –Fording Canadian Coal Trust, the second-largest supplier of coal to steelmakers worldwide, weathered its biggest-ever decline in share price today after stunning the market with a 50% lower profit due to lower prices and adverse effects from a strong Canadian dollar. Shares in US trading are currently showing a near 3% decline to $35.42, with options moving at more than 7 times the average rate, according to our scanners. Implied volatility rose sharply to open the session, up some 16% to 42% before pulling back to 40%. Today’s volume has centered at the January 33.375 puts, which are trading primarily to the bid at 4 times the existing open interest. A speculative move like this implies a trader taking advantage of short-term, exogenous effects on Fording’s earnings potential in hopes that the puts will decline in value as January approaches and Fording’s share price recuperates.
MSTR - Microstrategy Inc – It was a very good quarter for data-mining software maker Microstrategy, with all told a 14% increase in earnings for the quarter. Shares shot up 15.5% to $100 this morning on a bullish Q3 earnings report, options are trading at more than seven and a half times the average volume. The more than 14,500 lots in play measure up to more than a third of the total open interest. It appears that the November 70 puts traded 3,000 times with premiums down more than 77% on the session, while additional liquidity was seen in the November 105 calls, which cost 550% more today than they did yesterday.
GOOG - Shares in Google edged .75% higher to read at exactly $700 at the noon hour, with nearly 72,000 options contracts in play making it one of the day’s most liquid option series. Twice as many calls are moving as puts, and rather than brash directional bets on the “How high can Google go?” stakes, it appears that many traders are content to take profit on previous long positions in the November 700 and 710 calls. A look at the increase in premiums and you can hardly blame them. A trader who bought the November $700 calls two days ago paid $7.50 for the privilege – those same calls can be sold today for $19.10, netting a tidy 162% profit for two days’ work. Ditto the 710 calls, which were selling for $4.50 two days ago and have appreciated to $14.40 today.
VIX – With an hour to ahead of the Fed’s rate announcement, the Volatility Index is showing a pre-announcement respite of 5.7%, dipping below 20 to read at 19.87. A look at the volume distribution shows what looks like buying and selling of call spreads in the November contract between 25 and 35 – this morning’s pullback in call-side premiums making it cheaper to position in calls in anticipation of a pull ahead in volatility.
LNC – Shares in life insurance company Lincoln National took a 5% hit to $62.92 after the company reported Q3 earnings that missed analyst estimates. Options are trading at around 8 times the average frequency according to our “Hot by Options Volume” scanner. It appears that traders have taken advantage of a 66% decline in the price of these contracts to enter fresh longs in the November 65 calls in anticipation of a speedy recovery in share price.
Andrew Wilkinson and Rebecca Engmann Darst
ibanalyst@interactivebrokers.com
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