Wednesday's Options Report: CCU, SYMC, ORCL, MOT, JBL

CCU – Clear Channel Communications - This morning’s news that radio broadcaster Clear Channel’s long-bedraggled takeover by T.H. Lee Partners and Bain Capital may indeed be dead air sent shares plummeting some 17% to $27.07 as of this writing. With more than 300,000 options trading in the first 2 hours of the market, Clear Channel is the most active ticker on our platform by a long shot, as the 97% implied volatility shows options pricing in more than a third additional price risk to its shares over the next month. As was the case last Wednesday, when the second extension of a tender offer to bondholders sent implied volatility sharply higher and shares lower, it looks like April strangles with put strikes as low as 20 and calls as high as 37.50 are the preferred vehicle for trading the Clear Channel story. Given the fact that Clear Channel shares have traded consistently below the $39.20 offer price ever since the takeover deal was announced (in fact, Clear Channel hasn’t traded at $39.20 since 2004), it’s obvious that the market has never been comfortable with its valuation, and the ambivalence is no less abated with the original deal now apparently in its death throes. It is worth noting, however, that of Clear Channels, 966,000-strong open interest, more than 40% is concentrated in April puts at strikes 25 to 32.50.

SYMC - Shares in Symantec , the maker of computer anti-virus and anti-spyware solutions, are trading 1.8% lower at $16.79 on no immediate news catalyst. On Monday night the company issued a warning to customers of its so-called “DeepSight” threat notification service that a malicious worm or bot could be infiltrating its D-Link routers by exploiting an old chink in the routing system (this per a Computerworld news story) The bump up in option trading volume to 2 and a half times the normal level appears to be advance positioning ahead of Symantec’s April 30 earnings report – the brunt of the volume is concentrated in the May contract. But what’s eye-catching here is the level of bald put-buying at the May 15 strike, for which traders paid 45 cents today, in seeming anticipation of a break below the standing 52-week low of $14.54. Symantec shares are otherwise up 3.8% so far this year, outpacing the S&P information technology index by a whopping 16 percentage points.

ORCL - Oracle – Shares in Oracle are down 1.2% to $20.84 as the company prepares for its earnings announcement after the bell today. The earnings countdown explains the 21% disparity between historic and implied volatility as premiums reflect the greater risk to share price ahead of the numbers. While Oracle has uncorked positive earnings surprises for the past 4 quarters running, its shares are down 7% so far this year, and the price of the $21 straddle today at $2.00 supposes a 9% up-or-down move on back of the numbers. If the volume thus far this morning is any indication, the trader’s instinct favors upside for Oracle, given heavy buying in April 21 calls for about $1.00 apiece. In all, twice as many calls are trading as puts today – overall open interest has otherwise been quite evenly split between puts and calls.

MOT – Motorola - This morning’s announcement out of severely tested mobile phone company Motorola that it would split into two companies – one focused on handsets and the other on network equipment and other products – sent shares a weak 1% higher at $9.86 at present dispatch. Market rumination over the likely success of the venture has sent implied volatility sharply higher, with option premiums now reflecting about 25% more risk over the next month than has been the case historically. While option traders bought and sold at-the-money $10.00 calls in the front month, the tendency was to sell this same strike in May for 85 cents, while buying calls one strike higher, at the 12.00 strike, in July. Traders see a slightly better than 1-in-4 chance that Motorola can make a slow climb past $12 by July. The odds for a break above $10 by May are slightly better than 50/50.

JBL – Jabil Circuit – Shares in Jabil, the maker of circuit boards for computers, cell phones and other industries, cratered 17.2% to $9.42 after it issued a profit warning after market hours yesterday on back of a slowdown in its end markets. Implied volatility shows a level of With options trading at twice the normal level today, we can see that option traders are anticipating an elevated price risk from Jabil over the next month – implied volatility is holding firm at 1.3 times the normal level. Front-month action showed willingness to sell, as well as buy, puts at the10 and 12.50 strikes, while subsequent months showed 10.00 calls in May and June trade to the middle of the market for 59 cents and 86 cents respectively. While it’s not possible to say with bullet-proof accuracy whether these contracts were bought or sold, the fact that premiums in that May call strike lost three-quarters of their value overnight might have provided the impetus for a trader to take a bargain stab at the idea that Jabil might recoup to within a dollar of its previous 52-week low into the month of May. A short seller of this position would be making a very brazenly ominous statement about Jabil’s prospects indeed.

RL – Polo Ralph Lauren – Today 2% drop in shares of Polo Ralph Lauren was widely attributed to lagging consumer confidence and increasing price skittishness, headwinds that the paradigmatically preppy brand has sought to confront head-on with the rollout of a lower-priced line for JC Penney (“American Living”) by its Global Brand Concepts division. While implied volatility shows a very slim elevation above the historic reading, it appears that one trader sought to play against a turbulent outlook for Ralph Lauren by selling the May 60/65 strangle. The $5.60 combined premium of this position represents the maximum profit to be realized from the transaction if shares remain within the range of the strike prices into May, rendering both worthless to the buyer. The 5,000-lots traded at each strike sent overall option volume to more than 6 and a half times the normal level seen in Ralph Lauren.

CAG- ConAgra – Trading heavily on the eve of its quarterly earnings announcement, ConAgra Food options showed an early 22% spike in implied volatility (one of the biggest volatility increases on our platform) to some 32.5%. Shares are down about 1% to $21.75, and while the price of the at-the-money straddle suggests an 11% up or down move on back of the earnings announcement, the fact that traders are buying heavily into 20.00 puts in the April and May contracts suggests that the risk is to the downside. A move below $20 would send ConAgra below the 52-week low of $20.67. Today’s volume – which again favors those bearish puts by more than 11 to 1 – has sent total volume to 8 times the normal level.