Tuesday Options Update: GS, MS, RF, TSN, RCII, TGT, MSFT & PG

Rebecca Engmann Darst co-authored this article.

Goldman Sachs (GS) – Despite out-of-the-gate gains for the broad market following an Asian and European equity rebound, trading in Goldman Sachs stuck out like a sore thumb. By 10:40 its shares were down 10% at $83.45 easily breaching the 52-week low, but have recovered much of that ground since. Could it be that the weekend revelation of a Citigroup jilt during troubled times proves an Achilles' heel for Goldman? Or perhaps it’s reaction to the jigsaw puzzle being pieced together to explain the downside in which one suggestion is that Goldman might have been caught short of VW stock, which surged in German trading. In response investors continue to trade options on Goldman heavily in search of further downside for its shares. In the December contract traders are parking their cash in rights to sell at the 55, 70 and 75 strike prices where we can clearly identify fresh open interest building today given the volume of puts in play. As the outlook becomes more confused, we’re watching put volume build in the 30 strike at a premium of 1.90, which is twice yesterday’s closing print on the same options. 

Morgan Stanley (MS) – Shares lurched 25% lower mid-morning making Goldman’s move look like a ripple in the pond. Today’s financial crisis is nothing many investors have witnessed. In prior recessions less reliant global market linkages certainly hurt markets all round leaving its watermarks in the history books. Throughout this recession the contagion has proven absolutely brutal. The government has attempted to bail out the financial system over recent quarters but some corporate business models have been etched an indelible hallmark from the glacier-like movement of the financial crisis. Investors reacted badly to news yesterday of outflows in September from Morgan Stanley and once again option traders are positioning for further woes. It appears that bears are adding to existing plays with purchases of November puts all the way down to the 2.5 strike. Implied option volatility today stands at 210% and is one of the largest volatility gainers according to our screens. 

Regions Financial Corp. (RF) – Having received the royal seal of approval on its debt yesterday from none other than PIMCO’s Bill Gross, investors piled into shares of Regions Financial today helping to lift shares 6% to $10.60. Our options screening tools showed heavy put volume in the January 7.5 puts which were sold by investors at an 80 cent premium. It would appear that the endorsement is encouraging enough to some investors who had earlier sought protection through the use of puts. Implied volatility slipped from 121% to 115% today as pressure on its shares eroded. 

Tyson Foods Inc. (TSN) – Crippled by rising feed prices, mounting interest payments and a weak economy, food processors don’t exactly have it easy these days and with its major competitor slip-sliding away, Tyson Foods is on investors’ hit lists. Its shares are lower by around one quarter today at $6.13. There are only about 100,000 contracts of open interest in Tyson Foods and today 8% are at play. Investors are grabbing at puts at the December and January 5 strikes where current premiums reflect the potential for further share price declines to around $4.00 by expiration. 

Rent-a-Center Inc. (RCII) -  A poor earnings report and a grim outlook for the fourth quarter saw investors reach for the exit in this electronic retail franchise that created a 52-week low for its shares as the stock declined by around one third. Our scanners sensed what appears to be a quick turnaround from one investor who might have purchased puts at the December 15 strike yesterday at 1.85 only to sell today at a premium of 3.30. With the precipitous decline in the share price to $10.62 option implied volatility has jumped by around 15% to stand at 108%, which in turn continues to pump up option premium. Those same 15 strike puts are now bid 4.60. 

Target Corp. (TGT) –  The dour prospects over the holiday season have not helped uncertainty surrounding Target’s share price, which recently traded as low as $30.57, which is less than half its peak set in July 2007. Today’s announcement that 10% stakeholder, Will Ackman of Pershing Capital has some juicy gossip, has helped boost shares to $34.90 but has set implied volatility on the options alight returning to 100% where it was when shares traded at their lows. Investors appear to have taken fresh bull positions at the December 37.5 and 40 strike calls where little open interest was evident. These days, sentiment is so fragile that it will take more than the delivery of positive news to boost anyone’s share price with so many promising trading days spoiled by gathering storm clouds. 

Microsoft Corp. (MSFT)  -  With the imminent launch of a blistering marketing campaign for the next Windows operating system, investors are lining up to take bullish option positions at Microsoft where its shares are trading  2% better at $21.61 today. Heaviest option volume is in the November calls at the 27 strike – some 25% above today’s price. Some 14,000 calls reserving rights to buy the stock are in demand today at a price of just 7 cents. The January 22.5 call series is also heavily traded at a premium of 1.85. 

Proctor & Gamble (PG) – Investors will have to wait until after the bell on Wednesday to see how the third quarter panned out for consumer goods giant P&G, but for now there are signs of caution playing out in the options market. A 3,000 lot bear put spread traded between the 50/57.5 strikes with P&G shares trading marginally lower at $57.13. The trade costs 2.55 premium and insulates the buyer below a share price of $54.95, while the maximum objective from the trade is 4.95 should shares arrive at $50.00 or less at expiration next month. Elsewhere, volume was heavy at the 80 line where 16,000 calls were sold at 3 cents while a similar amount of puts were traded to the mid-price at a premium of 22.75. It’s hard to say precisely what this is. There is a ton of existing open interest both sides of the fence and without knowing whether stock is also involved, it’s hard to say. Without stock, the put positioning with a 100% delta is equivalent to being short the stock and would clearly be bear posturing.

Comments

[stocks:]

nice options Andrew

2008 Oct 28 01:51 PM

[steveballmer:]

MSFT is always a goooood investment!

2008 Oct 28 02:14 PM

[phdinsuntan...:]

what about options on currencies,
yen calls must be going to the moon

2008 Oct 28 04:26 PM