Friday Options Update: DELL, SAP, JAVA, LVS, C

Rebecca Engmann Darst co-authored this report.

Dell Inc. (DELL) – Perhaps selling pressure on Dell’s shares has run its course in the near-term with shares having lost 30% in a month, while at $10.78 Dell has still halved its value just two months ago. The drumbeat has become familiar with analysts forecasts taking greater attention to the anecdotal evidence presented by CEOs at these companies who are laying off employees to cater with slack demand especially from financial-services companies postponing purchases of IT equipment. Dell shares are higher today having rebounded from $8.85 at the depth of yesterday’s pessimism. Still investors continue to build bearish put option strategies in the December contract as they buy up 8, 9 and 10 strike puts – the latter two strikes trading on volume of above 4,000 lots a piece.

SAP ADR SAP) – German software maker, SAP is down by 3.2% today at $35.15. An investor appears to have placed a bear put combination on the shares using options in the December 30 and 35 strike. The strategy would involve buying the 35 strike at a 2.45 premium in exchange for selling the lower 30 strike puts at 1.0. The maximum profit from the trade occurs if shares reach or fall below the 30 strike by expiration and is measured by deducting that net premium of 1.45 from the distance between the two strikes, to yield a potential of 3.55. The 52-week low on the shares was recently set at $29.31. Implied option volatility, which also boosts option prices, stands at 66%, which is below the historic movement on the stock of 82.6%.

Sun Microsystems Inc. (JAVA) – The share price at Sun Microsystems Inc. may whether the storm into year-end, and not fall much below its current $4.13 but might be lower by April according to option trading patterns today. The December 4 strike puts were sold 2,500 times today at 52 cents, which strictly implies a breakeven for sellers at a shares price of $3.48. In the April contract there has been plenty of buying at the same strike where 9,000 lots have traded at 1.08, while at the higher 5 strike a block of 4,000 lots traded at a 1.68 premium. Implied volatility on the options is 12% higher at 111% today despite the gentle rebound in its shares. The world’s fourth largest server-maker hopes to trim its expenditure budget by between $700-$800 million through 6,000 job cuts announced today, representing around 18% of employees. The announcement comes hot on the heels of quarterly losses from two out of the three recent quarters. The company also faces current losses from the write down of recent acquisitions and a loss of market share.

 Las Vegas Sands Corp. (LVS) – Welcome news for the casino and leisure company, which secured financing of $2.14 billion, which according to one analyst should provide sufficient funds to pay current debt covenants and continue pipeline projects between Las Vegas, Singapore and Macau. Shares rallied 14.7% to $6.40 while option implied volatility remained heady at 223%. Investors used options to play further upside in the share price over the course of the next week through buying call options at the November 7.5 and 10.0 strike where a total of 13,000 options were bought. But the ceiling for the stock seems quite apparent in that timeframe since investors appeared to be heavy sellers of the 12.5 strike indicating there is a limit. There was heavy two-way action in the December call contract at the 7.5 strike.

Citigroup Inc. (C) – According to those who know, key executives at Citigroup bought shares in the company after regular trading hours. We’ll have to check the filings to confirm that CEO Vikram Pandit spent $7.5 million, while other executives allegedly spent a further $5.0 million. Today shares are still feeling the heat and have lost 5.7% to $8.91. According to the company it will also raise interest rates on credit cards to some of its customers, which must be extremely warmly received at the Federal Reserve. Option volume has been busy with 157,000 lots in action. The most popular series are found at the 10 strike calls in both November and December calls. At the December 2.5 strike put series, investors have boosted bearish plays by around one-third today paying a tiny 6 cent premium. The premium at the 5 strike puts is 33 cents, which is what investors have paid to add around one-third to the number of open contracts at the strike where some 16,639 lots exists.

Comments

[Richard Col...:]

This is an informative article that I enjoyed reading.
We don't need the junk Cramer writes which is all on speculation.

2008 Nov 15 10:37 AM

[PeteK:]

It can't be good when LVS keeps adding more debt.
Yet casino business slow down world-wide.

2008 Nov 16 10:54 AM