Following the report, with active volume weighing in at 38,500 contracts, we noted a decisive shift toward more bullish positioning at the $60.00 level. Heavy buying and selling was seen in the September 62.50 calls at prices ranging from $1.20-$1.70, where just over 4,000 contracts moved. Meanwhile, a trader appeared to sell some 2,800 lots in the April 55 puts at around $4.60, against a comparable amount of buying in the April 60 calls at a price-per-head of $6.90. The October 60 calls were also well bid, attracting volume in excess of 2,300 contracts. Option implied volatility has pulled back to some 6 percent below the average historical volatility in Target shares.
ANF - Shares in Abercrombie & Fitch advanced by nearly 1 percent ahead of the noon hour, trading at $78.80 one day ahead of the clothing retailer’s Q2 earnings. Ahead of the release, we note that the ratio of outstanding calls to puts is largely in balance. The total active volume of 2,767 lots represents a very small fraction of the ticker’s open interest. Heaviest volume has centered in the November 75 puts, where 1,024 lots were sold at a price of $4.70. Implied volatility on these options stands at about 46percent.
AEO - Today’s gains for Abercrombie & Fitch are slightly at odds with its sector peer, American Eagle Outfitters whose shares are down three-quarters of a percent at $22.83 after reporting a 13 percent rise in Q2 profit but trimmer margins due to sale merchandise priced to move lagging inventories. Outstanding calls and puts in American Eagle show a similar level of balance, but option volume of barely 3,000 contracts after the report is miniscule, and traders appear reticent to wager directional or volatility-oriented bets in the near term. Instead, today’s volume has centered in the January ’09 calls, where 1,173 lots were bought and sold at prices between $3.90 and $4.00. Implied volatility has shown a pullback to some 6 percent below historic volatility.
DKS – Strong results at Dick’s Sporting Goods sent shares up by 7.6percent today to $59.19. Options trading was twice its usual volume with all of the action in the Sep 55 and 60 calls. Ahead of earnings shares closed Monday at $55.58. Dick’s stock has been trending broadly higher as a result of earning the reputation of “best in brand” by several analysts. It’s a great example of consumer life carrying on perfectly well despite any of the mortgage and housing market worries. The company sold 37 percent more at $1.01 billion and made profits of $47.9 million compared to $25.7 million a year ago. Earnings per share were 9 percent stronger than forecasts and the company also boosted third quarter projections by 28 percent to 9 cents.
CFC – Countrywide Financial. Shares rose 4.1 percent to $20.61 today, after the WSJ suggested that the only remaining savior for CFC might be Warren Buffet. Having salvaged both Salomon Brothers and the investment banks reputation back in 1991, the Journal points to Mr. Buffet’s appetite for quality mortgage risk at his insurance companies. It might make sense for Berkshire Hathaway to nibble away at some of the assets owned by the strong brand and reputation that is Countrywide Financial.
Options trading saw 35,800 lots change hands in a finely balanced jostle for ascendancy. Put and call volume was matched. Coverage is possibly best identified in the October series where put trading is focused at the 15/17.5 strikes, while in the calls the volume is focused on the 27.5/32.5 strikes. Implied volatility on options contracts shrank by 10 percent to stand at 122 percent Tuesday.
XLF – Financial Select SPDR. Financial stocks added around 0.9 percent Tuesday with much of the 88,000 volume concentrated on the call side. There was some selling within volume of 14,200 calls at the September 34 strike, while greater volume at the 35 strike of 17,000 was conducted mid-market. In the Dec contract some 30,000 lots traded at 0.75 (delta of 0.27) but once again right in the middle of the market makers prices. The Dec puts saw what appears to be a spread between the 31 and 34 strike prices for a net 1.0 premium. A decline in the price of the XLF to $31.00 would net a gain of 2.0 per contract to that investor.
VIX – The CBOE Volatility Index [VIX] decline a further 4.3 percent to stand at 25.20 by late Tuesday morning with 144,000 options contracts changing hands. There was hearty volume in the August puts at the 20, 22.5 and 25 strikes (36,000 lots) while the call options for September traded heavily at the 22.5 and 25 strikes on volume of 10,600 and 15,400 lots, while the 35 strike calls were traded 35,400 times.
CMCSK – Comcast Corp Special Cl A – Total active volume this morning is 31,767 contracts trading, at more than 7 times the daily average. Shares nudged 1.10 percent higher in early trading at $24.74. In play are the October 30 calls, where more than 29,000 contracts traded to the middle of the market at a dime apiece – open interest on this contract soared in late July. Implied volatility on these contracts stands at 28.47percent - nearly 7percent below historic volatility.
NRG – NRG Energy - Moving at more than twice its average volume, against a 1percent gain in share prices to $37.22. Three key trades appear to be in play this morning involving lot sizes of 4,000 contracts. In the December 50 calls, 4,000 contracts were bought at a price-per-head of 0.40. This may have been done in combination with the sale of December 45 calls for $1.05 apiece, while a similar quantity of lots were sold in the September 40 puts for $3.10. Given the delta reading on the highest strike traded, the options market is pricing in a 12percent degree of probability that NRG shares will be trading above $50 by year’s end.
EMC – EMC Corp. – A 2.63percent gain for shares to $19.15 comes as nearly 65,000 option contracts are in play, heavily favoring the call side by nearly 3-to-1, largely mirroring the overall open interest in the tech ticker. Strikes in play include the September and October 19 and 20 calls, while there may be straddle activity in play at the January ’08 19.0 strike. Also notable is the disparity in implied volatility here, which at 32.6percent is nearly 14percent below the historic recorded volatility of EMC Corp share prices.
RIMM – Research in Motion - More than 43,000 contracts are moving ahead of the noon hour, two and a half calls moving for every put. Shares in the Blackberry maker have inched 0.70 percent higher to $79.21 as of this dispatch. Volume is centered in the front-month strikes, with ample volume on both sides of the September 76.60 strike to suppose that straddle positioning may be in play. The September 80 and 83.30 strikes have also been heavily in play.