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(IKN) - Option traders are bracing for volatile share price action in Ikon Office Solutions, the world’s largest independent distributor of office equipment and so-called “document efficiency” systems. This development may be a result news that Moody’s is placing the office supplies maker under review for a possible dowgrade after it announced the repurchase of $500 million in common stock through a so-called “Dutch auction.” Our attention was also drawn to the change in volume as it comes less than a week after unusual option activity was observed in yet another player in the office equipment space, Officemax. The nearly 20,000 option contracts in circulation this morning far exceed prior open interest in the company, which numbered about 12,000 contracts up to today. Most of this volume appears caught up in straddle buying in the December contract at the 15 strike, which was bought for a combined premium of around $3.00 – that’s nearly a quarter of today’s $12.59 share price, which is up more than 2.5% from yesterday’s close. A buyer of this position is looking for volatile up-or-down price movement, breaking above $15.00 or below $9.00 within the current contract period. Ikon’s current share price represents a 27% comedown from January’s levels.

(IDEV) – Earnings are due out before the bell tomorrow for drug manufacturer Indevus Pharmaceuticals, whose portfolio includes a number of unusual preparations for the treatment of conditions from overactive bladder to precocious puberty and hypogonadism. With shares trading 3% higher this morning at $7.49, options are trading at some 32 times the normal level – consistent with the higher level of anticipation observed among option traders ahead of an earnings report. With more than 32,000 contracts trading – measuring up to just under a third of the open interest – Indevus call volume is at its highest level in six months. Most of this volume appears drawn to January 5.0 calls, which are trading heavily to the middle of the market at around $2.55-$2.60. Given current premiums, a buyer of this position is more or less treating the call option like a proxy for the current share price. Implied volatility on Indevus options sits just below 45% and has shown little change over the past couple weeks.

(NASDAQ:VRGY) - Shares in Verigy, the Singapore-based maker of semiconductor testing equipment, are up more than 25% to $26.38 this morning after forecasting first-quarter sales for Q1 sales that exceeded analyst estimates.; The company promptly garnered an analyst upgrade on the strength of its robust sales outlook, as well as its success in growing its customer base up against competitors like Teradyne. Meanwhile, its options are trading at more than 15 times the average volume, with liquidity in December and May calls around the currently in-the-money 25 strike. It is worth noting that Verigy’s high for the year to date was set at $30.25 back in mid-June, but the option activity today hardly indicates runaway buying interest in calls at those strikes. Overall open interest in Verigy prior to today amounted to just 7,472 contracts, and showed twice as many open call positions as puts.

(NYSE:WFC) - Investors are taking a glass-half-full stance on Wells Fargo today, after the company announced plans to set aside $1.4 billion in mortgage loan loss provisions for Q4. Despite smarting from a smackdown on some of its mortgage lending operations, Wells Fargo is reportedly lighter on exposure to mortgage-backed securities than other sector peers, and it’s that side of the story that appears to be driving its shares 4% higher to $31.12 this morning. Option traders are somewhat more ambivalent, with some taking the opportunity to enter fresh shorts in the July 35 calls, which sold more than 4,000 times this morning on premiums around $1.90.

(NYSE:JNY) – Options in Jones Apparel Group, the parent company behind women’s clothing and shoe lines Jones New York, Barneys New York, Nine West, Sam & Libby, Bandolino, Enzo Angiolini and others, are moving at more than 7 times the average rate today as shares advance nearly 1.8% to $18.80. While the volume is modest in absolute terms at just above 2,100 lots, we were particularly seized by the realization that Jones is also a top implied volatility gainer, with the reading showing a 16.7% gain overnight to 50.7%. We’re noting heightened levels of volume in December 17.50 calls, which given current premiums implies a move toward $19.50 in the coming weeks. It’s worth noting here that option traders are sticking to a resolutely bullishly view of Jones Apparel’s prospects for recovery, with nearly 7 times as many call positions open as puts, despite the fact that its current share price is some $16 off the 52-week high and barely a 14% premium on its low of the past year.

(PPCO) - Options in Penwest Pharmaceuticals, the maker of drug delivery solutions, are attracting more than 6 times the average daily volume this morning as its shares gain 7% to $5.36. The company touts its oral drug administering technologies, which include product names TIMERx, Geminex and SynchroDose, as strategic tools to extend drug lifecycles and enhance their appeal to patients. Penwest’s current share price represents a fraction of its 52-week high of $18.14, set last November, though it appears to have made a meager climb up from the 52-week low of $4.68 set one week ago. The catalyst for today’s guardedly optimistic option action, which indicates fresh selling in the January 5.0 puts and fresh buying in June 7.50 calls, appears to be news that its CEO will present at an upcoming capital markets presentation for health care product makers in New York.

Source: Wednesday's Options Report: Ikon, IDEV, Verigy, WFC, JNY, PPCO