Monday Options Update: AMAG, XME, THOR, MSFT, SLXP, CEG, ING, RIMM

Amag Pharmaceuticals (AMAG)– The FDA raised some issues in its response to the company regarding preparation for marketing its iron-deficiency anemia drug, ferumoxytol. Shares declined by 12% to stand at $32.65 while option traders made this one of the hottest issues of the day. Some 2,986 November puts at the 30 line were traded at a premium of 2.70 implying a breakeven of $27.30 by expiration. However, around one half of this put volume appears to have been sold indicating that perhaps some investors don’t see much further for the stock to fall. The current 52-week low is now at $31.02. Interestingly enough, implied volatility on the stock clumped by the most across all stocks today to 83%, marking a 54% fall.

SPDR Metals & Mining ETF(XME) – Who knows whether or not commodity prices have recently overshot as they plunged from record highs? But for today at least investors have stepped back into the fray on the bargain hunt, possibly on account of the twin announcements of strong Chinese GDP (9%) and mention of a Chinese stimulus package. Without Chinese demand for the world’s commodity output these companies suffer and so the words are welcome news for miners’ earnings. Shares in the ETF are higher by 7.4% at $32.35 while options volume of 10,030 lots means they show up in our market scanner since the average daily volume is a lowly 4,000 lots. Investors today are looking to the November 35 strike call for continued upside in the stock. Premium at the strike is 2.45 indicating a breakeven of $37.45 within a month. Meanwhile there appears to be action at the 48 and 52 strike puts in conjunction with 53 strike calls. On all counts the 3,000 contract volume is associated with existing open interest of similar size.

Thoratec Corp (THOR)– This maker of healthcare products has seen options implied volatility jump around one quarter today to stand at 93.7% on a modest amount of call option activity. The November calls at the 30 strike were the most popular series. Historic volatility on the shares is at a more modest 60% reading.

Microsoft Inc. (MSFT) – Options trading in MSFT is once again a popular venue today with almost 100,000 contracts in action before noon. Despite the 1.8% share price decline to $34.50 today the November 25 strike calls are the single most desirable play where premium cost is 1.35. The volume at the January 20 strike put of 3,247 lots appears to have been created from the sell side indicating a possible floor for the share price.

Salix Pharmaceuticals (SLXP) – Shares are lower by 5.2% at $7.00 and our activity scanners are picking up relatively heavy volume on this drug maker whose market is in the gastrointestinal field. We see little news impacting the stock today and so are left looking for a cause. The January 7.5 strike call option is where all of today’s volume has taken place. This contract is home to more than one-third of its existing open interest and today’s activity could mark the exit from an existing position. The current open interest at the 7.5 strike was built back in March when the share price was around $6.10. If an investor is bailing out today, he or she is not losing much money given the fact that the opening trade at 1.40 is little different than today’s 1.30.

Constellation Energy Group (CEG) –  They say that utility-type stocks are typically least volatile and it’s noteworthy that accompanying today’s stock market rebound we note that this energy company is among the largest implied volatility decliners today where IV is off by 43% to 21.6% - a reading that most financial companies would be happy to see! Options activity is confined to the November 25 strike and January 30 strike calls while the shares in the underlying company stand 3% higher at $24.81.

ING Groep ADRs (ING) – With no fresh weekend news to inspire financial market bears, shares in Dutch banking giant ING are 19.1% higher today at $12.69 having rebounded off Friday’s $10 and 52-week low. The resulting decline in implied volatility is 45% and today stands at 113%. November call options have been bought on light volume from the 12.5 through 17.5 strike prices.

Research in Motion (RIMM) – Investors can’t shake off their funk and have precious little appetite for the company at present. Its fortunes have taken quite the fall from grace in light of the impending slowdown and shares today are feeling the hangover and are lower by 9% at $53.68. Option volume totaling 85,000 contracts has seen what appears to be fresh positioning at the November 40,45 and 50 strike puts by volume in excess of current open interest. Looks like option traders are betting on a fresh 52-week low.

Comments

[Richard Col...:]

Very interesting.
Thank you,
Daniel Kowkabany

2008 Oct 21 11:15 AM

[well:]

well looks like rim option traders wont have to wait we already hit 40.00 and if the sells off continues into nov, there wont be anything to short

2008 Oct 24 10:36 AM