Thursday's Options Report: ANH, NLY, MER, WM, FNM, AOB, LCC, CMTR, JNPR, RCL 1 comment
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Rebecca Engmann Darst co-authored this article.
(ANH) – Implied options volatility in Anworth Mortgage Asset Corp. spiked severely higher as the REIT company suffered a broker downgrade. It’s amazing how a change to “market perform” from “outperform” can send shares down by 21% in a session to $6.97. The precipitous decline reverses a strong appreciation of the stock price and removes three months hard work. In the options world, puts were keenly sought by way of protection from further bad news and outnumbered call activity by a factor of four. The April, July and October months saw put buying occur at both 7.5 and 5.0 strike prices. Implied volatility leapt threefold to stand at 122%. The April 7.50 straddle tells us that investors predict a range for the stock through expiration of between $5.20-$9.30. While overall option activity totaled 3,329 contracts early on, that still represents 30% of total open interest, which hugely favors bullish call positions by a factor of more than four-to-one.
(NLY) – Annaly Capital Management suffered a similar punishment following its removal from one broker’s “Best Idea List.” Its shares lost one-fifth of their value to $15.40 today while implied volatility on its options surged 90% to 116%. This time some 39,106 options were put into play with more than three bear plays for each call trading. In the April contract investors are reaching as low as the 10.0 strike for protection, which today costs three-and-a-half times the closing price on Wednesday. Breakeven at the 10.0 strike is now at $9.10 for buyers. The jump in options volatility today has options trading at three times the historic volatility displayed by the share price.
(MER) – Merrill Lynch earns the honor of being the most active options series in early trade thanks to a 5.5% drubbing to its share price. Shares now stand at $46.59, which has sparked interest today in the March 45.0 strike puts where premiums have doubled overnight rising to $1.55 per contract. It also appears that a put spread involving 10,000 of each of the April 45/40 strike puts is in play at a net cost of around 1.65. That yields a maximum gain of $3.35 per contract in the event that Merrill’s shares slump to the 40 strike by expiration. Today’s slide marks a new 52-week low for the stock, and was accompanied by what appears to be a fresh position of an-11,000 lot sale of calls at the April 52.50 strike.
(WM) – Washington Mutual is also seeing highly active options activity Thursday with volume of 75,000 lots on the board before 11am. A 5% share price slump to $12.07 is still above the 52-week low at $10.73 but put buyers are prepared to take no chances as they put more than three-times the emphasis on the bear side of the scale than the bull side. In the April contract, more than 10,000 puts have traded at the 10.0 strike at a cost of $1.00, which is 42% firmer than on Wednesday.
(FNM) – Fannie Mae has shed 10% in terms of share price which has instilled options business of 68,000 in Thursday’s trade. Implied volatility continues to ascend and today reads 99% with shares trading at $21.91. Much of the volume is in the March contract and is evenly balanced. The 25, 24 and 20 puts have seen most of the action while on the call side buyers are reaching as high as the 30.0 strike today.
(AOB) – American Oriental Bioengineering is showing curious options volume today focused on the January contract where a 9,800 lot straddle appears to have been traded. Today shares are lower by 10% and stand at $9.20. Since the company announced earnings today, which were nicely in-line, it’s a struggle to see why such pessimism surrounds the shares today. The option volume could be the closing side of a short straddle placed at around $5.60 several weeks ago. If today’s action did mark a closing transaction it was done so at a price of $4.20. We’ll need to review open interest tomorrow for a further clue. Implied volatility is still relatively high at 68%.
(LCC) – US Airways Group. Traders are looking at the puts on the stock today where the put/call ratio of 15 tells of bearish woes. The 11,000 contract in play today cover around 10% of the existing open interest on the stock. Fresh new positions are showing up in reasonable volume at the 10.0 strike at the September and January contracts. Such activity is around four times the average volume.
(CMTR) - Comtech Corp. This telecommunications company announced a pleasant set of earnings and sparked a 12% lift in the share price to $47.90. Options volume of 2,269 contracts is almost four-times the daily average and compares to open interest of just 14,623 options contracts. The optimism on the call side is confined to the March contract at the 45 and 50 strikes indicating investors expect still further for the share price to run ahead of expiration. There was lighter buying in the April same-strike contracts where premiums ramped up by over 200%.
(JNPR) – Juniper Networks shares continue to move lower despite news of a $1 billion share buyback aimed at staving off earnings dilution from an employee share plan. Option activity was decidedly bearish with a similar pattern across both March and April contracts. March calls at the 25, 26 and 27.5 strikes were sold in exchange for put purchases in the 25, 27.5 and 30 strikes. The 52-week low at $23.87 stands less than 10% lower than the latest $26.38 on the shares for a loss of 3% on the day.
(RCL) – Royal Caribbean Cruises Ltd. Options trading is higher than usual with an equivalent of one in five contracts in play. Some activity seems to comprise a calendar roll from the March 35 strike put to the June contract. Shares are lower today by 2.5% and stand at $34.22. Outright buying of the March 35 puts is also helping drive volume today.