Monday's Options Report: Barr, Tellabs, El Paso, Opsware, Corning

Barr Pharmaceuticals Inc. (BRR) shares rose by 5.2 percent Monday to $54.91 amid speculation of the maker of oral contraceptives being a takeover candidate. The unconfirmed speculation sent both call option volume and implied options volatility jumped. Options volatility increased by around one quarter to stand at 34.6 percent as traders braced for more swings in the company share price as they appeared to bid for straddles at the 55 strike in the August contract. In so doing investors may benefit should shares head sharply in either direction. The cost of the combined call and put options at that strike is around 4.4 up from 3.9 as at Friday’s close.

Traders look at the size of the straddle premium as an indication of where shares may range between now and August’s expiration. By adding and subtracting the premium from the strike price we can visualize that expected share price variation. So today’s increase in implied volatility widens the target, which befits a stock under the speculative spotlight.

While that straddle appeared to be in play today, speculators also paid a smaller but sharply higher premium for the right to buy 100 shares in Barr Pharma at $60.00 by August. Around 6,700 contracts traded as high as $165 per contract in comparison to a settlement price on Friday of just $5.00. Overall, today’s volume of 22,300 contracts is large in comparison to open interest of 33,000 on the stock.

EP - After what appeared to be a couple of high-density put-side calendar rolls in connection with Friday’s July option contract expiry, oil and gas driller El Paso (EP) continues to command a high level of relative put side volume in Monday’s early market action. With underlying shares down 2.25 percent, trading at $18.00, put spread activity has continued in the August series at the 17 and 18 strikes. About 15,000 lots have traded on each of the two strike levels, pushing the total ratio of put versus call volume to about 18 to 1. Last week, the company announced that it had received a so-called Wells Notice from the SEC regarding preliminary enforcement action pertaining to prior revisions to its oil and gas reserve disclosures. Limited call-side activity this morning can be discerned at the August 20.0 strike, where 1,000 lots traded today. A total of 36,638 lots have traded this morning. El Paso currently has nearly 230,000 open option contracts outstanding.

OPSW - It’s up with Opsware (OPSW), as shares in the data management company hurtle some 36 percent higher to $14.00 in early trading, following news of an acquisition by Hewlett Packard at a per-share price of $14.25 (about a $4 premium from Friday’s closing price). Today’s circulating volume of 8,540 option contracts is equivalent to more than a third of Opsware’s outstanding options contracts. Investors are paying premiums inflated by some 900 percent in the August 12.50 calls, which confer the right to buy 100 lots of Opsware stock at $12.50 per share by next month’s expiry. Elsewhere, volume has been robust in the January ’08 series, where the 10.0 call strike is currently selling on the open market for $4.10 – nearly 30 percent of Opsware’s current share price. Nearly 3,500 lots have traded at this strike so far today

GLW - Options volume in materials maker Corning (GLW) is resoundingly higher this morning, on news that it is closing in on a breakthrough development in fiber-optic nanotechnology for mobile communications provider Verizon (VZ). Corning’s innovation allows cabled fibers to be bent around very tight corners without incurring signal loss. According to a Corning press release, these bendable fibers will allow carriers to offer high-speed Internet, voice telecommunications and HDTV services to customers in apartments and condominiums, where high-speed services of this nature have traditionally been spotty and inefficient. Corning shares are up about half a percentage point in early trading, at $26.67, well within a dollar of its 52-week high.

Options traders have rewarded the innovation by putting 54,250 of its option contracts in play. Calls are currently outmoving puts by a factor of nearly 3.5. More than 13,650 contracts have moved at the August 30.0 call, which presupposes a nearly $4 rise in Corning share prices within the next month. Nearly 2,000 contracts have gone through at the January ‘08 35.0 strike. Implied volatility on Corning options stands at 35 percent – a significant elevation from the 20.8 percent historic variability in Corning share prices.

TLAB - Implied volatility in Tellabs (TLAB) option spiked more than 33 percent this morning, standing at a whopping 63 percent after an online financial news site reported this morning report that Nokia and Siemens are preparing a joint offer to acquire Tellabs. Citing a source with inside knowledge of the deal, the Nokia-Siemens bid would value Tellabs shares in the $16-17 range. With Tellabs shares up 6 percent in early trading, at $12.56, some 26,650 option contracts have circulated this morning. About 3 calls trading for every put – but bidders on call and put side have remained well below the $16-17 price level tipped in this morning’s series. In the August series, interest has been brisk at the 12.50 straddle, and again at the 15.0 call, where 6,215 lots have traded. Volatility positioning – which may be wagering on the possibility of an overvaluation of Tellabs shares – has favored the 12.0 and 15.0 strike levels. More than 4,000 lots have traded at the 12.0 put, while more than 2,000 lots have moved at the 12.0 and 15.0 call strikes.

VIX - The CBOE VIX index [VIX] eased by a surprisingly small 2.4% percent Monday to 16.54. The Dow Jones industrial average rose 0.83 percent to 13,965.40. The S&P 500 rose by 0.78 percent to 1,546.11, while the Nasdaq composite index rallied 0.56 percentage point this morning to 2,702.64.

Calls on the VIX remained the trade in near-term focus Monday, while puts in the November series featured in investors’ thinking today. Near-term fears over either subprime or earnings refuse to give up the ghost. On Friday we noted some 14,000 August call options trading at the 30 strike in the VIX, which helped send premiums up by around one-half. Today, the call buying is heaviest at the 17.5 and 22.5 strikes on combined volume of 4,800 contracts. Meanwhile in the November series traders plumped for the 15/14 put spreads – at least judging by the conjoined volume levels. For each put at the 15 strike it appears that two puts at the 14 strike were in play today. That would allow a trader to place a ratio spread at zero premium or if even luckier at a credit of a nickel. The trade would make its maximum profit of 1.0 at the lower strike price of 14 by expiration, but thereafter leaves the trader short of a put and thereby exposed to a cave in volatility.

Comments

[Long-Short Guy:]

Here's the Corning press release:
<blockquote>
<b>Corning Announces Breakthrough Optical Fiber Technology</b>

CORNING, N.Y.--(BUSINESS WIRE)--Corning Incorporated (NYSE:GLW) today announced the development of a new optical fiber-based technology that solves an historic technical challenge for telecommunications carriers installing fiber-to-the-home (FTTH) networks.

Corning’s breakthrough is based on a nanoStructures™ optical fiber design that allows the cabled fiber to be bent around very tight corners with virtually no signal loss. These improved attributes will enable telecommunications carriers to economically offer true high-speed Internet, voice and HDTV services to virtually all commercial and residential (apartment and condominium) buildings. Current optical fiber installations lose signal strength and effectiveness when bent around corners and routed through a building, making it difficult and expensive to run fiber all the way to customers’ homes.

“This is a game-changing technology for telecommunications applications,” said Peter F. Volanakis, president and chief operating officer at Corning. “We have developed an optical fiber cable that is as rugged as copper cable but with all of the bandwidth benefits of fiber...
</blockquote>

Source:
home.businesswire.com/...;newsId=20070723005699...

2007 Jul 23 12:39 PM

[Frank Li:]

Which are the main competitors to Corning that could lose out from this?

2007 Jul 23 12:40 PM