Tuesday's Options Report: First Solar, XLF, Citigroup, Intuit, Sirius

 |  Includes: C, FSLR, INTU, SIRI, XLF
by: Interactive Brokers

(NASDAQ:FSLR) - Phoenix-based solar cell maker First Solar Inc rose 12.25% this morning to $166.24, an all-time-high for the stock, after securing contracts to supply solar modules for household electricity to Australia's Babock and Brown and to Ecostream Switzerland GmbH. The deal has been valued at $1 billion over the next 5 years. First Solar's share price has enjoyed an uninterrupted charmed run since its initial public offering in November 2006. Since starting trading at $27.54 at the start of this year, the share price has risen relentlessly, culminating in today's unprecedented high of $165.49. A look at the option action, while showing an unsurprising proclivity to the call side activity, shows traders imposing a clear price ceiling on First Solar – perhaps mindful of the solar cell producer making like Daedalus and flying a bit too close to the sun. Buying pressure was seen in the November 160 calls, which are in-the-money but given today's $12.60 require another 4% upside move just to break even. High premiums appear to have encouraged some traders to control trade costs through call spread buying in the November contract, buying the 170 call against the sale of the 175 call, establishing an anticipated price ceiling for November. Traders in the December contract shorted the December 180 call at 4 times the existing open interest. Yesterday this position could be had for $4.34 – today the price is $11.00, which goes some distance in explaining why a trader might seize the chance to sell these calls now on massively inflated premiums and buy them back as premiums erode closer to expiry, and as First Solar's share price becalms.

(NYSEARCA:XLF)– Financial Select Sector SPDR – Shares in the financial services ETF found a foothold at $31.31 this morning, with 154,000 options in play trading twice as often to the puts as to the calls. A huge chunk of this morning's volume was tied up in a 40,500-lot transaction in the January 30 puts, though time and sales does not as yet show the direction of the trade. Closer at hand, we observed heavy selling in the November 31 puts even as premiums came off slightly and buying in the December 29 puts, implying an outlook of continued erosion in the financial space en masse.

(NYSE:C) – Shares in Citigroup, meanwhile, are down 2.8% this noon hour to $34.87 as analysts and observers tinker with possible breakup scenarios for the ailing giant. With nearly 214,000 options in play as of noontime, Citigroup is the day's absolute most liquid non-index fund ticker according to our market scanners, and a look at the front-month action shows long volatility still the play for traders looking to steel themselves from whatever lies ahead in Citi's veritable asteroid field of credit exposures. The at-the-money November 35 straddle is fetching about $2.50 today, covering investors in the event of a short-term break below $32.50 or above $37.50 in the short term. We were particularly interested to see heavy buying interest in the November 40 calls as the price of this contract hit a new abysmal low of $0.12. Volume and open interest built up appreciably in these calls last week as traders surmised that the departure of CEO Chuck Prince might usher in a new "era of good feeling" about the company's prospects for improved margins and share price performance. Deeper woes about its credit adequacy and the prospect of further writedowns appear to have disabused many investors of that notion – at least in the context of this volatile November contract.

(NASDAQ:INTU) - Intuit Inc. – Volatility and relative volume gains hit our market scanners early this morning in Intuit, the maker of TurboTax and other tax prep software. The flurry of activity lent currency to takeover-style rumors but a look at the 1.7% decline in share price would seem to rebuff that possibility. Shares are currently at $31.86 as of the noon hour, with options trading at nearly 10 times the average volume. Early in the session we noted heavy buying in the November calls at strikes of 32.50 and 35, the latter strike on volume 3 times the existing open interest. The December 35 calls are also finding ready buyers on volume twice the prior open interest. Implied volatility also took an unexpected 12% leap to start the session, with option traders anticipating a 40% degree of fluctuation in its share price looking forward. Intuit shares have historically shown just a 25% level of volatility. The current share price is 9% off the standing 52-week high.

(NASDAQ:SIRI) – Sirius Satellite Radio - News emerged today that possible regulatory hurdles in the merger of satellite radio providers XM and Sirius may be well cleared, easing the road to a merger by year's end. The FCC is reported to have sent letters to both companies requesting information for possible concessions in the event that federal regulators approve the deal, which analysts say could yield some $5 billion in synergies. Sirius shares are up nearly 4% to $3.48 on the news, with options trading at 3 times the average volume as traders look to sell calls at the 4.0 strike in the November, December, January and March contracts. Volume on the latter three contracts exceeds 14,000 on each strike. Implied volatility at 90% towers over the 44% historical reading.

VIX – A notionally flat performance for shares in early trading flew in the face of spiraling oil prices and a lack of resolution in the financial services vortex. The trend brought volatility off a bit this morning. The VIX index was down 2.8% as of noon's writing at 23.62, with barely 42,500 option contracts in play. More than half of this activity was tied up in December 25 calls, which traded to the middle of the market in a single transaction this morning, making it hard to surmise whether this was an opening or closing trade. Open interest in this strike has nearly doubled over the past 5 sessions, yet more evidence of the persistent and rising tide of long volatility positions as the options calendar approaches year's end.