Today’s tickers: GOOG, CMC, TIVO, MBIA, VIX, WM, KBH, LEN, MRX, UST, AMZN
GOOG – Shares in the enormous search engine are trading .81% higher at $552.65 this afternoon, after treading water for most of the early session ahead of its earnings report. The price of the at-the-money $550 straddle continues to reflect a 9% anticipated up-or-down move on back of Google’s quarterly numbers – bear in mind, that’s more than a $50 price move either way. Indeed, Google is a share price with an illustrious history of spinning like a whirling dervish on earnings announcements and market momentum. This is readily apparent from a look at the sheer range of strike prices in play this afternoon. Calls are outmoving puts in Google by a factor of 1.5 with buying in calls at strikes as high as 580, 590 and 600, while fresh put-buying occurred at strikes as low as 500. The risk here, as of 2 pm at least, appears somewhat skewed to the upside, with delta showing about an 18% chance of the 500 put strike landing in the money, while a pass at 600 on the call side is trading on a probability of 1-in-4.
CMC – Shares in Commercial Metals Co., the producer and recycler of steel and other metals, gained 4.5% to $28.00 this afternoon on the tickling of old rumors about possible takeover interest from Nucor. Our market scanners detected a spike in CMC option volume to nearly 15 times the normal level, which interestingly enough was concentrated almost to the ounce in June 30 calls. These were bought on a volume of some 16,500 lots – six and a half times the open interest on this strike. Implied volatility rose 13% on the chatter – enough to push the implied volatility reading past 58%, typical of a stock moving on some rumor momentum – but we won’t hazard a call as to the veracity of the report. A break of the $30 level would still leave CMC at nearly a 20% discount to its 52-week high set back in July. Still, the concentration of volume in the June contract, as opposed to the front month, is intriguing.
TIVO – Shares and options in TiVo, the maker of digital video recording devices that allow TV viewers to cut commercials from recorded programs, are moving on a double dose of good news today. First came news of the upholding of a software patent infringement case in TiVo’s favor against rival Dish Networks. The judgment also upheld $89 million in damages granted to TiVo along with an order that Dish Networks shut down its own DVR service. Then came news of a TiVo subscription deal with CBS for its so-called “Stop Watch” service, which measures up-to-the-second viewer data on commercials and programs. TiVo also has an existing “Stop Watch” subscription agreement with NBC Universal. The news sent shares more than 29% higher to $8.80, while options traded at 25 times the normal level. This was characterized by heavy buying in February calls at the $7.50 and $10 strikes. The latter strike conveys the right to lock in TiVo shares at price levels not seen since April 2004.
MBI – This morning’s post-earnings conference call by MBIA, the world’s largest bond insurer, provided some measure of comfort to investors that the company’s $2.3 billion Q4 loss won’t scrap the company…at least not yet. Concern over the MBIA’s ability to maintain its top credit ranking at Moody’s despite a crippling quarterly loss had sent implied volatility higher, but this reading came off some 19% after the conference call today. Shares, meanwhile, gained 6% to trade at $14.80 this afternoon, as trader fears were quelled enough that many saw fit to sell February puts at strikes of 7.50, 10 and 12.50. Overall open interest still shows 1.3 puts open for every call – a persistent mood of defensiveness as plans for a possible bailout of bond insurers remain up in the air.
VIX – An opening reading above 28 in the Volatility Index following yesterday’s half-point Fed rate cut provided a briefer, watered-down reprise of the sentiment that lay behind the January 22 spike, when the index surged past 37.50 following a surprise, inter-meeting 75 bp hike. Namely, that the Fed, newly stalwart in its recognition of the need for further rate cuts, is already behind the curve and in any case, unequal to the task of keeping markets immune to a new slew of multi-billion-dollar write-downs and monocline downgrades. While the volatility reading itself has come off some 5% to 26.24 this afternoon, trading action in VIX options still shows real concern that the market may see another volatility go-round before the last hurrah of the February contract. Traders were keen to go long volatility in VIX options earlier today, with buying in February calls at the 32.50 and 35 strikes to protect portfolio positions against another wave of volatility in the S&P. Put positions at the volatility-bearish 20 and 22.50 strikes appear to have been unwound.
WM – On the eve of this week’s 50 bp Fed rate cut, Washington Mutual CEO Kerry Killinger told industry watchers at a Citigroup-sponsored financial services conference that his bank was banking on an increase in net-income of $150 million for every 25 basis-point cut in the Fed’s guiding rate. Taking Killinger at his word today, post-Fed, WaMu shares are up 3.6% to $19.35 this afternoon. The 80,000-plus options trading this afternoon rank it among the most active options trading on our platform. The last such spike in its share price occurred earlier this month, when a dogged Q4 earnings report gave rise to rumors that it might be taken over by the likes of JPMorgan. That rally was accompanied by a spike higher in option implied volatility, and we’ve seen no evidence of a similar such volatility spike today. Nevertheless, option traders appear to be buying and selling at-the-money straddles at the February 20 line, wagering for and against turbulent share price movement away from the $20 strike price. The April 20 straddle, meanwhile, attracted mostly sellers. This may be evidence of traders looking to pocket the $4.70 premium in the expectation that WaMu shares won’t veer too far from current levels even given the current Fed rate-cut regime.
KBH, LEN – The worse-for-wear homebuilding space got a welcome reprieve on back of the latest Fed cut, and it’s in KB Homes and Lennar Corp that we find two of our biggest share price gainers and most active option tickers. Shares in KB Homes are trading 8% higher at $27.21, a move that induced traders earlier today to sell short out-of-the-money puts at the February 22.50 strike at nearly 3 times the open interest for $1.00 apiece. This inclination to sell puts – a by-all-accounts bullish indicator – extended into the April contract at the 20 strike, while call spread activity was observed at the 25 and 30 strikes, with a trader buying the lower strike against the sale of the out-of-the-money call. Similar evidence of near-term confidence in the some price stabilization for the badly-beaten homebuilders was observed in Lennar, whose shares are up more than 8% to $19.71. February puts at the 17.50 strike were mostly sold for $1.05 while calls at the 20 strike were bought for just under a buck apiece.
MRX – Medicis Pharmaceuticals - Options in Restylane-maker Medicis Pharmaceuticals are trading at more than twice the normal volume today against a 4% decline in its share price to $20.88. The decline followed news that the US FDA has rejected an application for Medicis’ Botox competitor Reloxin on grounds of incompleteness. The move sent implied volatility in Medicis options higher by some 14% to more than 52% - making it one of the day’s top implied volatility gainers on our platform. Puts are trading at nearly twice the normal level, where it’s a safe bet that many traders are looking to take profit in February puts at the 20 and 22.50 strikes, where premiums are up 375% and 116% respectively on the session.
UST – UST Inc. – Earlier this week we noted a spike in implied volatility and 7-fold increase in option volume in UST, the maker of Skoal and Copenhagen tobacco brands. The development followed news that, following its spin off of Philip Morris International, Altria is making an incursion on the $3.7 billion U.S. smokeless tobacco market under the Marlboro brand, directly challenging UST’s 75% dominance of the space. With UST shares trading 2% lower today at $52.12, its options are moving at 5 times the normal level today, with a more than five-fold increase in put volume. Once again the volume appears to favor put activity at February strikes of 55 and 60, with higher put-side premiums implying buying interest at those strikes.
AMZN –Amazon.com - Despite yesterday’s after-hours sell off on back of a Q4 margin squeeze and underwhelming profit forecast for 2008, shares in the online retailer are up .88% to $74.82, this afternoon. Nearly 139,000 options had traded as of this afternoon, with twice as many puts moving as calls, amounting to 30% more put volume than is normal for Amazon options. Continuing the trend we observed on Tuesday, traders, appear eager to buy puts at the February 70 strike with calls at the 75, 80 and 85 strikes selling off.
Andrew Wilkinson and Rebecca Engmann Darst
ibanalyst@interactivebrokers.com
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