Wednesday's Options Report: KR, MSFT, YHOO, NBR, PSUN, AMP, EW

Kroger (KW) – Shares in supermarket chain Kroger advanced more than 3% to $25.38, thanks to an analyst upgrade by the folks at Merrill Lynch. Our market scanner detected an increase in trading volume to some 9 times the normal level, with some interesting front-month moves that could suggest a volatile course ahead for the neighborhood grocery franchise. Heavy buying interest at May 25 calls for 95 cents apiece was met with similar long interest in puts at the same strike, which sold for 55 cents. While we can’t definitively state that these positions were bought together, a trader opting for that strategy would pay the $1.50 combined premium to wager on a break above $26.50 or back below $23.50 (testing the standing 52-week low) over the next month. The fact that implied volatility actually ticks in below the historic reading suggests that option prices at large don’t put much stock in a break of that magnitude actually happening…a setup that usually renders the price of a long-volatility position lower than would otherwise be the case.

Microsoft (MSFT) – Shares in the software colossus are coasting on a near-3% gain today to $31.12 on the eve of its earnings announcement, with traders mollified by its refusal to amend its standing bid for Yahoo following that company’s quarterly numbers. While today’s share price action speaks to a level of confidence in the market, the implied volatility reading on Microsoft options shows traders pricing in 25% more risk to Microsoft shares over the coming month, and the price of front-month options alone reflect about a $2.45 possible move on back of the earnings. Heavy buying is concentrated at the May 30 call strike, while higher strikes are showing two-way volume.

Yahoo (YHOO) – Shares in Yahoo are trading .74% lower at $28.31, as the recusant takeover target appears to be falling flat in attempts to persuade the market that its first quarterly profit increase in more than two years would justify a higher takeover price from the likes of Microsoft. While implied volatility has come off more than 20% since the numbers were unveiled, the fact that this measure of anticipated share price deviation is still 11% elevated above the historic norm is a big clue that the full thrust of the numbers (…and its implications for Yahoo’s final ticket price) may not be factored into shares yet. Granted, while twice as many calls are trading as puts in Yahoo today, traders aren’t making aggressive bets on more upside. Much of today’s call volume appears to be the result of positions taken off the table in May 30 and 32.50 calls, with buying interest noted in July 30 calls.

Nabors Industries Ltd (NBR) – Shares in the on-land and off-shore oil driller are sitting pretty at new 52-week high of $38.26, a .92% gain from yesterday’s levels – shrugging off this week’s reported 12% decline in Q1 profits. But with nearly 17,000 options active before the noon hour, it remains one of the most heavily traded tickers on our platform today, with buying interest at the June 40 call strike for $1.40 suggesting that this latest share price high (and then some…) is here to stay. Selling interest at the June 42.50 call strike for 60 cents may indicate call spreads going through.

Pacific Sunwear of California (PSUN) – An increase in option trading volume to more than 7 and a half times the normal level has the equivalent of nearly a third of Pacific Sunwear’s open interest actively deployed, with more than 3 times as many calls trading as puts. This is occurring against minimal share-price action, with shares up .69% to $13.11. Heavy volume at the May 12.50 strike traded to the middle of the market at $1.00, exceeding open interest. Puts at the June 15 strike traded to the middle of the market at $2.45.

Ameriprise Financial (AMP) – This morning’s earnings miss by Amerprise, the former investment advice arm of American Express, sent shares down more than 4% to $48.11, spackling on a trend that has taken Ameriprise shares down nearly 12% for the year to date. Option volume more than tripled on today’s news with what may be an inclination among traders to take a contrarian tack on the news, buying May 50 calls for $1.30 – a 41% discount from yesterday’s levels. Prior to today, the 17,000-lot open interest in Ameriprise showed twice as many call options as puts.

Edwards Life Sciences (EW) – Shares in Edwards, the world’s leading producer of heart valves and other cardiovascular treatment products, stormed ahead more than 11% to $53.95, a new 52-week high, a day after its earnings report and 1 week before the company is set to present at a Morgan Stanley health care industry conference. Options are trading at more than 20 times the normal level, with calls outmoving puts 17 to 1, heavily concentrated in May calls at strikes 50 and 55.