Mentor Corp. (MNT) – Shares in breast implant manufacturer, Mentor Corp. surged as much as 90% Monday to $30.57 following a bid for the company by Johnson & Johnson to enter the prosthetic market. Open interest, which measures option investors’ positions on a stock stands at only 16,077 contracts, which is why Monday’s volume of around half that jumped out at us. In the December contract at the 17.5 strike it seems that an investor established a 2,500 lot position in mid-November at a premium of just 50 cents per contract. Shares that date traded as high as $15.41. Today it appears that those calls were sold at a healthy 13.20 premium as the investor banked gains of around $1,270 per contract. Elsewhere call volume at the 30 strike in the January contract was buoyed as it appears an investor took advantage of the deal to sell calls at an 85-cent premium. This could have been the closure of a stale call position established in April when shares were trading at around $27.00 and the calls were bought at 2.20 each.
3M Company (MMM) – Option implied volatility – a measure of forward looking uncertainty on a stock – rose by around one-third at diversified manufacturer, 3M following dire news from the latest ISM survey. The survey pointed to the largest economic contraction since 1982 and worse for the manufacturing sector was a drop-off in future orders. Stocks exposed to infrastructure spending rose last week in hopes that the Obama administration would literally stimulate the economy from the ground up. Shares declined 4% to $64.32 early Monday while demand for at-the-money December puts at the 65 strike heightened. In early trade some 10,000 contracts were traded at a 3.75 premium implying that shares would need to decline to a price of at least $61.25 by expiration later this month. Open interest at the strike before trading today was only 1,421 lots and so clearly we’re witnessing fresh bearish positioning. As the morning wore on investors stepped up demand for put options at the 60 strike.
Leggett & Platt Inc. (LEG) – The company provides everything from shop and office fixtures and fittings to foam mattresses and home furnishings. Its shares recoiled 4% also today to stand at $13.85 while option traders favored puts expiring in December at the 12.50 strike. Some 10,130 contracts traded at this strike, which harbors the largest value of positions by open interest. Investors hold almost 21,000 contracts. The 30-cent premium today implies further downside to at least $12.20 before a long position would break even. Today’s puts were sold indicating that an investor was either closing a long position or expects shares to hold above the $12.20 breakeven.
Ford Motor Co. (F) – Stories emerging that Ford is scrambling to sell its Volvo brand helped shares rally as much as 10% in early trading egged on by eager option traders scrambling for lower strike call options expiring in the December, January and March delivery months. In the front month investors appeared to position long of the 3 and 4 strike calls at premiums of around 40 and 20 cents apiece, while selling calls at the 5 strike at perhaps a dime to help shoulder some of the cost. Automakers are expected to cobble together some type of strategic plan to present lawmakers tomorrow in order to secure bailout assistance. Investors pushed up share prices at both Ford and GM today despite a broad slump for share prices because they see Congress has little alternative but to help given fresh fears that a worsening credit environment is descending on the economy.
Citigroup Inc. (C) – There was heavy volume in options as shares in Citi gave back 13.6% of last week’s closing rally with shares falling to $7.17. In the December contract it appeared that the trade du jour was call spreading between the 7.5 and 10 contracts which both traded around 30,000 lots. Meanwhile the 7.5 and 5 strike puts were slightly less active but the similar volumes indicated put spreading. In the January puts at the 7.5 strike where open positions sum to 16,333 lots we note a slug of half that trading to the bid today at a 1.55 premium, most likely stemming from the closure of a long position.
General Electric (GE) – Implied volatility on GE’s options rose by one-fifth today to stand at 87.5% as investors sold shares and bought puts on the industrial conglomerate. The trend was set by the weak ISM survey and helped reverse the bullish trend of last week. Shares at GE fell 8.3% to $15.75 while keen buyers snapped up bearish puts at strikes from 16 to 10. Call trading at the December 16 and 1.5 strikes was buoyant as both buyers and sellers furiously exchanged contracts.
Morgan Stanley (MS) – Further pressure on financial issues is playing out in an 18% share price decline at Morgan Stanley at $12.08. Option investors have clung on to the jugular today as they enlarge open bearish positions at the December expiration at strikes from 12.50 all the way down to 7.50. The implied volatility has leapt from 119 to 155% on its options today.
Bank of America (BAC) – Investors added to an existing 18,000 bearish option stance on the stock as they bought 12,000 more puts expiring in January at the 7.5 strike for a premium of 49 cents. Bank of America’s share price dropped almost 12% to $14.30.