Today’s tickers: WB, DGL, PHM, BMC, RIMM & XLF
WB– Wachovia Bank- Option traders have a sharp slide in Wachovia’s share price in view. With a 21% loss to its share price today at $10.81, 171,000 options are in play with 2.5 times as many puts changing hands as calls. In the front October contract the most popular destination is the 5.0 strike where 31,000 puts have been executed up to premiums of 90¢. At the 2.5 strike put some 6,960 lots are in action at 40 ¢. Today’s fears are elevated but nothing new to option traders given the sizeable open interest at play already at strikes from 2.5 through 10.0.
DGL– Powershares Gold Fund - An unusually large block of October 37 strike calls traded to the middle of the market this morning while the underlying shares, which track the price of gold mining shares, trade with a 2.2% gain at $33.35. The open interest on all options here is just 34,284 contracts with the series in question holding just over 10,000 lots in terms of current open interest. The options traded at mid-market but we think that with the premium at 0.35 today, it’s more likely that an investor is closing out of the current position rather than adding more. Today’s high volume stands out on our scanners at tenfold the regular average volume.
PHM – Pulte Homes –Despite today’s 1.5% decline in shares to $15.64at this homebuilder the reality is a stark rebound since July. In that time shares have rebounded from $8.31. We are reporting above average volume in the January 10 strike calls where some 19,351 contracts have traded today. That represents 71% of current open interest at the strike. The 5.70 premium is steep since the options are deeply in the money. Looking back at the build in positions here on the chart it appears that a much of this position was established in October 2007 when these options cost 6.70. Someone has possibly come through this entire crisis relatively unscathed with minor losses unless today’s activity is a fresh long.
BMC –BMC Software Inc– Only 24,408 contracts of open interest exist on this stock, whose shares are lower by 2.2% at $29.34. Hot options activity is located at the November 30 call line where premiums dipped 10% today to 1.90. This looks like fresh buying and would imply a breakeven share price of $31.90 by expiration. Shares at BMC have slumped from above $40 during the summer while option implied volatility at 44.8% compares to historic volatility of 39.1% on its shares.
RIMM – Research In Motion – Earnings-driven news that RIMM will have to pay more to build products that will be sold for less was a bad combination for its share price Friday resulting in a 25% decline to $73.70. As a result our market scanners have singled this equity issue out as most active in today’s session. The call/put ratio of 1.29 doesn’t reflect the dire share price decline and good two-way traffic is evident in both call and put volume.
XLF - Financial Select Sector SPDR– Yesterday’s guarded optimism with significant volume in new put strategies is now understood. Today financial shares are lower by 2.9% to $20.22 as more than 125,000 options have already traded. The October 21 puts are most active with 27,000 lots trading for a premium of 1.80.
Andrew Wilkinson
Senior Market Analyst
ibanalyst@interactivebrokers.com
