Monday's Options Report: XLF, Boyd Gaming, MRVL, E*Trade, AIG, FXI

 |  Includes: AIG, BYD, ETFC, FXI, MRVL, XLF
by: Interactive Brokers

Financial Select Sector SPDR (NYSEARCA:XLF) –Selling pressure mounted across financial companies early on Monday in what is fast-becoming a sordid spectacle of “whose write down is biggest anyway?” Citigroup’s chief, Chuck Prince fell on his own sword over the weekend and the financial giant took the opportunity to announce a further $8-$11 billion is collateral damage as a result of previously badly reported asset backed losses. Late last week shares covered by the XLF (Financial Select Sector SPDR. )broke through the support point generated by the manic August era. Since those dark days when liquidity around the globe dried up, investors have watched shares at each of the member components slip through that support, indicating worse to come ahead. The exception to the move has been American Express whose shares have held up, while the outperformer has been Goldman Sachs, where, despite a 4% share price decline today, shares are 40% above the worst point of the summer. Today, the XLF has rebounded from its weakest point for a loss of 2% with shares trading at $31.18. We can report sizeable trading volume on the put side of the options market today, yet since the trades all took place at the middle of the market, we can’t readily tell whether investors are poised for more bearish trading ahead or not. Two trades stick out like the proverbial sore thumb. First, in the December contract, some 45,000 puts traded in the 27 series at a premium of 0.43. What we do know is that current open interest at that strike is a mere 12,106 contracts, which confirms that this is a fresh position. A seller of the contract gets to rake in the premium and doesn’t feel the market will fall by 14.7% at which point the trade would break even and accrue losses. A buyer would benefit from two angles. First, the premium paid today would increase in the event that the financial share prices continued to weaken. Second, they would also win if implied options volatility continued to rise. Today that volatility is once again higher at 37.7% in comparison to a still lofty 24.3% on the underlying shares.

Boyd Gaming (NYSE:BYD) – As Vegas nights go, the day is still young…but a look at the option action shows possible takeover rumors may be in play in Boyd Gaming, the casino and resort outfit behind the Borgata Hotel Casino & Spa in Atlantic City. With shares up 3% to $41.82, traders are heavily buying the November 45 calls on premiums up 350% on the session. The rush to buy these calls has traffic exceeding 6 times the prior open interest. Boyd Gaming shares are currently trading 16% above the 52-week low, but 22% below the 52-week high of $54.07.

Marvel Entertainment (NASDAQ:MRVL) - A blockbuster Q3 earnings report from comic-book icon-turned-media empire Marvel Entertainment provided a touch of “Bam! – Kapow – Cha-Ching!” to an otherwise skittish market today. Marvel tripled its Q3 net income from a year ago, beating street expectations and boosting year-end guidance largely on the superhuman strength of consumer merchandise numbers from its Spiderman franchise. The report gave Marvel shares a near-20% tailwind to $27.81 and sent options volume to 9 times the daily average, according to our scanners. It appears that rather than upping the stakes on new price targets for Marvel, some traders may have been content to take profits on existing positions in the March 30 calls. The 16,600 lots trading here today sold to the bid, having increased 164% in value overnight.

Last week online brokerage E*Trade (NASDAQ:ETFC) reported plans to close down its institutional trading division in Asia, less than a month after reporting its first quarterly loss in 5 years. A look at the option action in E*Trade shows the company’s options among the most liquid series according to our market scanners. Shares are down 2% to $9.25 - on par with the broader financial sector but only 15 cents above its standing 52-week low - while option traders appear to be availing themselves of the elevated premiums afforded by 78% implied volatility (versus 63% historic) to sell the December 9/10 strangle in anticipation of a leveling of volatility over the next 6 weeks as shares remain hemmed between those two low strike prices. For more bullish positioning – and cautious at that – traders are looking all the way to the April contract, where we observed fresh call-spread positioning between the 10 and 15 strikes. These April 15 calls were sold to the bid for $0.65 in what looks like a trader establishing an upside cap on any upside even if shares break above $10 next spring.

Shares in leading insurer AIG (NYSE:AIG) bucked the trend in financials, staging a 1.5% gain to $60.03 on news that former chairman and CEO Hank Greenberg is planning to contact shareholders to drum up interest in possible asset sales and management reorganization, this according to a morning dispatch from Bloomberg News. Greenberg still controls more than 11 percent of AIG, which is due to report earnings on Wednesday. While premiums on the call side rose marginally higher on the share price gain, much of the order flow in AIG calls is going to sellers. Implied volatility on AIG options is sharply elevated ahead of earnings, at 50% against a historic reading of 31%.

iShares FTSE/Xinhua China 25 (NYSEARCA:FXI) - Shares in the Chinese ETF took a double-beating Monday. First, Asian investors became more concerned with contagion stemming from U.S. subprime despite Friday’s turnaround into the closing bell. Second, Chinese authorities muddied the picture for local investors who have hitherto been piling into Hong Kong shares to take advantage of greater liquidity and an exposure to international investor demand, ill-afforded on the mainland. The FXI ETF shed 7.25% Monday to stand at $193.01 hurting investments in the fund, which includes shares of China Mobile, PetroChina and China Life Insurance. Comments at the weekend seemed to put a timeless hold on fulfilling the conditions necessary for Chinese investors to be able to deal directly with Hong Kong. In today’s options trading on the ETF, although there was a clear rise in put trading on the shares, where puts outnumbered calls by a factor of 1.6, it was far from clear that investors shares the pessimism as apparent in today’s share price weakness. In the November contract, there was decent volume traded at either side of the current share price ($193.01). Bothe the 200 and 184 strikes appeared to trade most heavily to the bid, indicating that traders were selling the contract. This could be positioning in a straddle combination where investors try to “pin-down” the price action into expiration hoping that prices will soon settle and remain where they are. At the 190 strike option buyers were seen buying puts in what was the most active volume of the day. At the 205 strike, there was also decent volume in the puts, and this may well have been profit taking on long bearish positions.