Today’s tickers: ETFC, AMTD, WMT, ADBE, EQT, VIX
ETFC- Shares in E*Trade (ETFC) reclaimed 15% of their value today to $4.08 as company executives hastened to assure clients that the company remains well capitalized and market observers began puttering impatiently with buyout speculation. A look at E*Trade options implied volatility shows investors pretty firmly convinced that its saga is far from over, today’s relief bounce notwithstanding – the implied volatility reading at 188% is two and a half times the 73% degree of turbulence that its shares have weathered in the past. A look at the volume distribution shows the January ’08 5.0 calls attracting buyers and sellers, while traffic is also in evidence in the December 3 / 4 strangle, a position going for $1.35 today – more than a quarter of E*Trade’s hammered share price.
AMTD – TD Ameritrade – So is there any substance to the conjecture that TD Ameritrade might be emboldened by E*Trade’s fresh wounds to make a bid for the company? Implied volatility remains sharply elevated at 69.5%, about 1.6 times the historic reading, suggesting that traders feel there’s some wild card lurking in TD Ameritrade’s share price. Shares in the online brokerage are in a holding pattern, up 0.32% at $18.95, 11% off the 52-week high, but its options are trading briskly – some 2.8 times the daily average. A look at the November 17.50 calls shows these contracts are selling off briskly on a volume of 11,657 – matching up against roughly half the open interest in the strike – as premiums gain 3% on the session.
WMT – In a session cast as a crucible for consumer sentiment, before-the-bell earnings from Wal-Mart were perceived as a kind of squeamish litmus test on the health and resiliency of the U.S. consumer. In an unexpected development, the big-box retailer surprised the market with solid evidence of cost-controls despite evidence of declining traffic as higher food and energy prices dent the spending power of its meat-and-potatoes clientele. The market got the 4% move that yesterday’s at-the-money straddle implied – and then some! Shares are up 6.5% at $46.16 as of the noon hour, providing a ready snapshot of the degree to which its earnings caught the market left-footed with some welcome good news. Implied volatility snapped back sharply, receding some 25% after the earnings release. Meanwhile, today’s option action shows traders readily taking profit in November 45 calls, which more than doubled in value overnight from $0.50 to $1.10.
VIX – The resulting move higher for U.S. indices had immediate upshot – or downshot, as the case may be – for the Volatility Index, which reared back 16% after yesterday’s 30-plus close to read 26.08 at the noon hour. With 70,000 lots trading on the option side, the November 30 calls continue to attract most liquidity this afternoon as these contracts decline 53% in value today. Some of these may be trading in tandem with the November 25 calls, which have changed hands more than 12,000 times today.
ADBE - Shares in Adobe (ADBE) languished 5% to $40 today, after surprising news that Bruce Chizen, CEO of seven years, will step down at the end of the month. The company is angling to combine its standard PDF software with the Flash platform of Macromedia, the multimedia firm that Adobe acquired two years ago – creating a giant in the digital multimedia platform space that is already richly coveted by Microsoft. The current implied volatility reading is nearly 1.6 times the historic reading, consistent with the bearish price action following the shock departure of an executive. But a look at the volume distribution suggests that same traders may be wagering on a snap back for Adobe shares. To wit, we noted a 9,000-lot transaction in the January 50 calls, which traded to the middle of the market at $0.25, which if bought, would imply a break of Adobe’s standing 52-week high by January.
EQT – Equitable Resources – Shares in this integrated energy company, whose footprint is in the Appalachian-basin natural gas market, moved .58% higher at $52.31, and while the 6,360 contracts in play are modest in absolute terms, the figure compares to 27% of its total open interest and is 6 times the average daily volume. Most of this volume appears to have gone through in calls at the 60 strike on the December and January contracts, which – if bought – imply a sustained move to fresh highs for Equitable Resources over the next month and into the New Year. Its current 52-week high is $56.53.
Andrew Wilkinson and Rebecca Engmann Darst
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.
