Thursday's Options Report: Morgan, Merrill, JP Morgan, Citigroup, Medarex, Raytheon, Manpower, AstraZeneca, Jos Bank Clothiers

 |  Includes: AZN, C, JOSB, JPM, MAN, MEDX, MER, MS, RTN, XLF
by: Interactive Brokers
XLF – While the Financial Select Sector SPDR has given up more than 2 percent to $34.00 in today’s melee, but some of the companies that make up the EFT have been humbled by investors.

MSMorgan Stanley shares fared worst suffering a 5.3 percent slide to $62.00. Implied volatility rose, shrugging off yesterday’s respite and now stands at a 44 percent measure. Monday’s $60.92 will act as key support going forward. Meanwhile options trading is centered around volatility plays. The August 65 straddle has traded at a premium of 4.75 up from 3.6 yesterday. The straddle combines a call with a put (either purchase or sell both at the same strike and at the same time). The investor wants volatility to rise or fall respectively.

MERMerrill Lynch implied options volatility is also at around 44 percent today while options trading at 28,000 contracts is modest, but also balanced. In the Merrill case with shares trading at $75.40 (down 3.6 percent) has options traders playing volatility through strangles at the 70/75 strikes, while allowing for some bullish positioning further down the time horizon. For example the heaviest series in trading today is at the October 80 line on the call side where 5,496 lots have traded at 3.8, which would imply that this investor sees shares regaining $83.80 by expiration. There is also more optimistic trading at the 100 strike in the October contract, which might actually be premium selling against the 80 call line.

JPMJPMorgan shares declined by 3.7 percent to $44.80 Thursday with implied volatility trading around 25 percent above its norm when looking at share price volatility. Four times as many puts traded as calls with two 10,000 chunks of puts trading in both the September and December 35 strikes accounting for one third of total volume. The cost of protection at the September strike rang up at 0.35 while in the December contract was 1.1. It appears that an investor is buying nearby puts and selling far-dated puts at around 0.65.

CCitigroup Inc. shares are lower by 3.8 percent to $47.63. options trading is balanced while implied volatility at 36 percent is not too far adrift from a reading of 31 percent on underlying shares. Straddle activity appears prevalent at the 47 line in August. Today that at-the-money straddle

MEDX - Options in biopharm company Medarex (MEDX), which produces human antibody-based drugs for the treatment of cancers and leukemia, have seen a conspicuous uptick in volume in recent sessions. And so it was today, with Medarex ranking among the top-10 most actively traded tickers on our screens, with shares up 2.3% at $17.34, well within 5 percent of a 52-week high. This morning, 59,000-plus contracts were put into play, with heaviest volume at the August and November 20 calls. Activity on the latter contract appeared to involve call selling, with premiums now at $1.00 – a full quadrupling in value over the past two weeks.

RTN - One day after announcing that one of its units had one a $75 million Air Force contract to provide weapons data equipment upgrades to the military’s F-15 fighter jet, and three days after its share price hit a new 52-week high at $59.90, shares in defense contractor Raytheon (NYSE:RTN) dipped 2 percent today, in step with the broader markets, at $55.41. On the options side, 19,000 contracts circulated this morning – equivalent to more than 20 percent of Raytheon’s total open interest. Heavy call buying was observed at the August 52.50 calls, which sold at prices of $3.10-$3.20. The same strike in the September calls traded to the middle of the market in what appears to be fresh call-side positioning in the defense contractor. Raytheon has outperformed the S&P 500 Index by more than 7 percent over the past year, while its returns have outpaced the S&P Industrials Index by more than 9 percent.

MAN - Options in nationwide temp job chain Manpower traded at more than 7 times their average daily volume this morning, against a 6 percent slide in share prices to $65.54. The 3,600 actively traded lots equals more than 40 percent of the total open interest in the company, with what appears to be call buying at the August 70 strike and selling of the November 70 strike. The price of the latter contract has depreciated more than 75 percent in value since the beginning of the month. Implied volatility on Manpower options currently stands at 47 percent.

AZN - Shares in European drugmaker AstraZeneca slid 3.4 percent in early US trading after the FDA announced that a safety review involving AstraZeneca’s acid reflux drugs, Nexium and Prilosec, had been conducted pursuant to clinical studies that linked the drugs and heart attacks. With shares trading at $49.31 at noon, more than 6,000 options contracts were circulating – nearly 5 times the average daily volume. Volume was skewed to the call side, while premiums are favoring the put side. Front-month exposure is extremely limited, but heaviest volume has been seen at the January ’08 55 calls.

JOSB - A nearly 6.5 percent decline in July same-store sales for clothing retailer Jos Bank Clothiers sparked a slide in share prices of 7.5 percent. The 6,000 circulating contracts were equivalent to 20 percent of the company’s total option interest. Puts and calls traded a fairly even jaunt today, though the 2-to-1 bias of puts to calls among outstanding option holders testifies to the largely bearish sentiment on this retail ticker. With shares at $29.88, roughly a third of today’s circulating volume traded at the at-the-money August 30 call, on premiums 40 percent on yesterday’s rates. Elsewhere we observed heavy activity at the October 35 put, which was selling for $6.50 today. The market is currently pricing in nearly 70 percent anticipated volatility in Jos Bank share prices going forward.

VIX – Volatility is up 15.1 percent at 25.61 in the CBOE Volatility index while the VXN, measuring implied volatility across the Nasdaq market is 10 percent firmer at 23.19.

Trading in VIX futures options is interesting early on with some clear examples of spread trades going through – some of which might be closing trades given the fact that the VIX put in a new high today. For example the 17/22 call spread in August traded 20,000 times. Meanwhile another volatility play seemed to occur in the September contract at the 16/17 lines indicating a strangle for a combined premium of 5.15. On the call side the 20/25 call spread was in play on volume of 30,000 lots on either side. The net premium there looks to be at around 1.55 indicating breakevens for a volatility buyer at 26.55 to the upside and 18.45 to the downside.

By 12:10pm the Dow Jones industrial average was 1.02 percent lower at 13,518.00. The S&P 500 index was 1.37 percent lower at 1,477.46 while the Nasdaq composite index dropped 0.66 per cent to 2,595.70.