Thursday's Options Report: FMD, CCJ, YHOO, TGT, LEH, EWT, RKH

Rebecca Engmann Darst contributed to this report

First Marblehead Corp. (FMD) - Troubles – and with them the options implied volatility – continue to mount at First Marblehead Corporation, a finance company that securitizes student loans. This morning the company announced that it would avail itself a $1 billion line of credit offered to it by the private-equity arm of brokerage Goldman Sachs (GS) due to regulatory restrictions. It also indicated that it would have to write down an as-yet-undisclosed sum of residuals receivable from the recently insolvent Education Resources Institute. The news sent implied volatility nearly 30% higher this morning to 245% - a 54% elevation above the historic reading – as shares slumped to a new 52-week low of $4.06. The sense of urgency and discomfort about First Marblehead’s solvency is evident in the rush to position freshly in front-month options, and buying activity in both calls and puts at the $5.00 line suggests interest in the long-volatility side of the equation. Buyers are also flocking to the April $2.50 puts, however, where the implied volatility reading stands at 361% - substantially higher than the 308% reading at the $5.00 put – suggesting that demand is greater for option protection at this very lowest strike position.

Cameco (CCJ) –Shares in Cameco Corp., the world’s largest publicly traded uranium company, jumped 2.3% this morning to $36.64 on reports that China National Nuclear had indicated an interest in Canadian acquisitions or joint ventures. Implied volatility on Cameco options rose more than 13% to 55% on the news this morning, as option volume promptly quadrupled. Fresh buying interest is observed in April 40 calls, trading at more than 3 times the open interest. Calls at the same strike in May also attracted fresh long positions.

Yahoo (YHOO) – The saga of the prodigal takeover target moved into standoff phase this morning on news that Yahoo may be alliance-building with Google (GOOG) and AOL…as Microsoft (MSFT) reportedly is in talks with Rupert Murdoch’s tough-as-nails deal-meisters News Corp (NWS) on a potential joint bid for Yahoo. The upshot of all this Hatfield-and-McCoy posturing is that Yahoo more immune to a drop to pre-bid share price levels, and the likelihood of a few bucks more in the takeover kitty is a bit better today. This was in evidence through vigorous trading at the April 25 put strike, which sold off heavily for just 7 cents apiece. Meanwhile, call spreaders are in force at strikes 30 and 32.50 in the April and May contracts, voting confidently with their premium dollars that the initial $31-per-share Microsoft offer is where the bidding starts…while shares are less likely to command more than 32.50.

Target (TGT) –A 4.4% drop in March same-store sales at quirky discount retailer Target was quickly forgotten by traders who looked instead to the prospect of better April sales due to Easter timing and a rise in net sales. Shares rose 2% on the news to $53.41, and it is worth noting in this respect that implied volatility on its options currently shows a 15% elevation against the historic reading, suggesting more deviation from the historic norm in its share price over the coming month. Heavy two-way traffic was observed at the April 55 call strike, but we also observed volume more than triple the open interest in October 55 calls, which were heavily sold for $5.60 apiece.

Lehman Bros. (LEH) –Shares in vulnerable brokerage Lehman Brothers held on to a fragile .35% gain to $40.77 heading into the noon hour. This morning the company announced that it had bailed out five of its own money market funds, taking $1.8 billion in illiquid assets on to its own books. Option traders, meanwhile, were enlivened enough to put some 73,000 option contracts in play, much of it caught up in April 35 puts, which sold heavily early in the session. Activity at the October 22.50 straddle observed this morning appears to be the closeout of a speculative position opened during the market meltdown of March 17 – at $20.95, the position was closed out for a nickel profit.

iShares MSCI Taiwan Index Fund (EWT) – Defensive options trading against a 2.8% gain in the price of the Taiwan-index-correlated fund caught our attention this morning. With shares at $16.47, we observed a 25,000-lot put spread go through in the May contract between strikes 15 and 16. The trader in this case likely bought the higher-strike puts for 60 cents, funding the purchase in part through the sale of May 15 puts for 23 cents. The price of this closed-end fund ranged below $15 for a two-month stretch from mid-December to late-February, briefly revising that level on the March 17 market meltdown. Open interest otherwise favors calls by a factor of 1.3.

Regional Bank HOLDRs Trust (RKH) – Regional banks are in focus this morning via a 19-fold increase in option trading volume in the regional bank sector fund, whose holdings include money-center banks JPMorgan Chase (JPM), Wells Fargo (WFC) and Wachovia (WB), as well as smaller-cap counterparts SunTrust Banks (STI), Northern Trust (NTRS) and PNC Financial Services (PNC). Shares edged .82% higher to $120.90, but it looks like traders positioning long in April put spreads at the 115 and 125 strikes. A trader in this case would likely seek to offset the $6.70 cost of a long position at the 125 strike by selling the 115 put for $1.50 – a move from a trader all but assured that the fund won’t make a test of the $110 52-week low over the next couple of weeks. Shares are otherwise down 8.7% for the year to date.