Wednesday's Options Report: Intel Sharply Lower; Yahoo, Amazon Climb

Rebecca Engmann Darst co-authored this article.

(INTC) –Intel – Shares in the leading chip maker took a 4.4% bump on the chin to $25.49 this morning following an analyst downgrade of the sector. With 73,500 options trading in the initial hours of post-holiday trading, Intel rated as one of our most heavily trafficked option series, calls out-moving puts by a factor of 1.1. Inclination among traders appears consistent with a bearish forecast for the sector, following – rather than anticipating or trading against – this latest analyst take on the industry, with selling pressure in January 27.50 calls on volume of more than 15,600 lots along with heavy buying in the January 25 puts, which traded 22,000 times in total. Implied volatility has shown a sharply higher divergence from the historic reading over the past week and a half, and the current 35.7% reading indicates traders expecting about 23% more volatile price action from Intel in the coming weeks than it has exhibited historically.

(YHOO) –Yahoo! – Having spent much of 2007 cast as the homely alsoran to Google (GOOG), shares in the beleaguered search engine have started the year 2.4% higher at $23.82, with nearly 50,000 options in play making it one of the most actively traded option families according to our scanners. Volume distribution shows traders possibly positioning in anticipation of Yahoo!’s next earnings report on January 29, and doing so defensively, with memories of its ’07 earnings record still fresh in mind, as puts at the February 22.50 traded freshly to buyers and the middle of the market on a volume of nearly 10,000 lots.

(NSTR)– Northstar Neuroscience – Our market scanners picked up an increase in option volume of 71 times the normal level, with calls moving at their most agitated level in at least a year, owing to what may be call spread activity in the March contract between the $7.50 and $15 strikes. Shares in Northstar, which develops cortical stimulation therapies for sufferers of neurological injury and disease, are trading 4.4% lower at $8.89 this morning. The current 162% implied volatility reading represents the apex of an upward trek that began in mid-to-late November as Northstar’s share price eroded into single-digit territory, but early inklings of call spread activity may be putting a March timeline on possible recovery for its share price.

(XLE) – Energy Select Sector SPDR - With weak-dollar action driving crude oil futures higher, amid the prospect of geopolitical unrest in oil exporter Nigeria, price action in the energy sector ETF, whose components include the likes of Exxon, Chevron, ConocoPhilips and Schlumberger, was surprisingly flat at $79.55 this morning. More than 103,000 options have changed hands in the early hours of trading, with 5 times as many puts trading as calls. Notable here is a near 67,000-lot transaction in the March 75 puts – a strike that prior to today numbered only about 12,000 open contracts. With no information at this dispatch as to the direction of the order flow, we venture to suppose that the 75’s represent fresh long positions, possibly hedging against bullish exposure to the sector elsewhere and taking advantage of the slight comedown in premiums at that strike level. The fact that open put positions outnumber calls by nearly 1 and a half may attest to the popularity of that strategy.

(OII) – Some traders are nonetheless wagering on 2008 as a year of exploration, at least in the case of Oceaneering International (OII). Shares in the company, which develops deepwater engineering services and products to the offshore oil and gas industries, advanced 3.6% today to $69.81. Oceaneering’s options traded at nearly 5 times the average rate, with bullish sentiment evidenced by fresh buying in January 70 calls a volume quadruple the prior open interest. Already at this early hour, call volume in Oceaneering is at its highest level since late October.

(AMZN) - Last week we noted a keen degree of bullish interest in Amazon.com, which appeared on track to surpass its $101 52-week high following early indications of bumper sales activity for the 2007 holiday season. Today its shares have advanced another 3.3% to $95.69 as the analyst community sits up and takes notice of the implications of its latest bull run. With 43,500 options trading, today’s volume is privileged to calls by a factor of 1.5, but what’s noteworthy here is the degree to which Amazon.com’s implied volatility remains elevated above the historic reading. With a 60% gauge of implied volatility, option traders are expecting 1.6 times the level of share price fluctuation out of Amazon.com that its shares have shown historically – note that last Monday, the implied and historic volatility readings were roughly even. Meanwhile, while traders continue to be beguiled by January calls at strikes of 95 and 100, we observed selling at the 105 strike, which could be evidence of traders using the sale of the 105 contract to fund the purchase of lower-strike calls, which are 60-80% more expensive today owing to the bullish share price action and sharply elevated implied volatility. If this is the case, the gesture appears to put a near-term ceiling on Amazon.com prices.

(BJ) – Interesting option activity was observed in BJ’s Wholesale Warehouse, the East Coast warehouse club operator and rival to Costco and Sam’s Club. With the company due shortly to report December same-store sales BJ shares dropped 11.2% to $30.04 in early market action on back of an analyst downgrade which cast doubt on its ability to beat street forecasts for sales 10 months into its much-vaunted turnaround. Our market scanners picked up an increase in option trading volume of 8.7 times the normal level, in tandem with an 18% spike in implied volatility to 46.44%. With twice as many puts in motion as calls, traders don’t appear inclined to second-guess nay-sayers in the analyst community, with puts at the January 30 level freshly bought and calls at the 35 strike selling.