Monday's Options Report: XLF, Novastar, CFC, CELG, Nike

Rebecca Engmann Darst co-authored this article.

(XLF)– Financial Select Sector SPDR – A near-2% gain in the underlying share of the financial sector ETF spurred bullish option traders to pull out the proverbial stops. With more than 360,000 contracts trading before noon, the XLF is the day’s most liquid option family by a long shot, and call buyers are putting pedal to metal with 3 times more calls in play than puts. Of interest here is massive buying interest in January 35 calls, which attracted a volume of more than 124,000 lots, with premiums up some 43% on the session. Calls at the 34 strike traded nearly 68,000 times, mostly to the middle of the market.

(NFI) - Options in Kansas City-based subprime mortgager Novastar Financial Group . Late last week the company disclosed that Wachovia had waived certain financial requirements from the group that might help Novastar forestall bankruptcy proceedings. Today its options are trading at more than 6 times the average rate, owing to what may be the closing of positions in December 5.0 puts against the buying of December 5.0 calls. While the current share price represents just a 2% sliver of its 52-week high of $117.28, the rush to call buying activity even at the very meager strike of 5.0 suggests some degree of confidence in the market that Novastar might just scrape by with a little help from its friends.

(CFC) –With nearly 60,000 contracts in play against a 5.8% advance for shares to $12.21, options in mortgager Countrywide rated among the most liquid option families in early market action according to our scanners. The reversal in share price activity is part of a larger bull wave in the financials today, as financial companies still grappling with exposure to mortgages and mortgage-backed derivatives announce new tactical measures to remain afloat in the housing recession and ensuing credit squeeze. Our data shows calls and puts moving at a comparable clip, with the gain in share prices adding girth to call-side premiums. The December 12.50 calls traded more than 19,000 times on premiums up some 40% to $0.65. Heavy put-side volume was observed in January 10.0 puts, which traded more than 11,000 times.

(CELG) – Celgene – Disappointing clinical results for pipeline cancer drugs continue to be a prime mover of volume and volatility in the option market today. Today’s big mover is Celgene, the developer of cancer and autoimmune disease drugs, whose shares were down 14.5% to $49.00 at the noon hour. Over the weekend, the company reported the results of clinical trials for its leukemia drug Revlimid at the annual convention of the American Society of Hematology. The data revealed a so-called “complete response rate” to Revlimid that was was lower than many had anticipated, and compared unfavorably to a competing drug by Millenium Pharmaceutical. Options in Celgene today are moving at 7.4 times the average volume against a 14.5% decline in share price to $49.00. Of note here is fresh writing in the December 50 puts on a sum volume of more than 12,000 lots, which would suggest a high-risk, highly speculative bet on Celgene shares making a quick recovery. Fresh volume in the December calls at the same strike attracted buyers and sellers. Also notable is the 16.3% gain in implied volatility to 53.4% - 1.5 times the historic reading.

(NKE) – Iconic shoe and athleticwear Nike is due to announce Q2 2008 numbers next Wednesday after the bell. The past several weeks have put Nike at the center of a barrage of dealmaking activity in the sports apparel sphere, first with its bid for jersey-maker Umbro, followed by later speculation that the company might make a play for Adidas. For now we’re surmising that it’s pre-earnings interest – and not the sentencing of its former endorser Michael Vick - that’s driving option action in Nike to more than 4 times the average volume, against a .61% gain for shares to $65.80. The prevailing theme appears to be one of a shift toward defensiveness, with positions in the January 70 calls selling off on a volume of 5,000 lots as similar volumes were involved in bear put spread activity in the January contract between strikes of 60 and 65. This brings the proportion of puts trading to twice that of calls – prior to today’s session, the proportion of open put to call positions was roughly equal. Implied volatility at 31.5% shows a very slight gap above the 30.7% historic reading.