Friday's Options Report: MCO, YRCW, TLM, IMA, ONXX

YRC Worldwide (YRC) – Option traders gave a big 10-4 to the continent’s largest trucking company, YRC Worldwide, despite the company’s $46 million loss. The so-called less-than-truckload operator indicated that internal restructuring efforts had put it on the road to recovery, sending shares nearly 30% higher at $16.82. While options in the trucker are trading at more than 7 times the normal level, traders have put more than twice as many puts in play as calls, and early in the session we noted buying interest in June and July puts at the 15 strike, possibly implying the prospect of a little expectation management in the market heading into the summer. Some critics say the current fuel-cost environment will make YRC Worldwide’s ambitious recovery a tough sell in the summertime market.

Moody's (MCO) – Options in Moody’s are trading at 8 times the normal level of volume, matching almost a third of its open interest, with its earnings numbers fully two days past. Shares are down .30% to $36.97 and with puts outmoving calls by 15 to 1, it appears that much of today’s volume may involve the closeout of May put positions at strikes 30, 35 and 40. Fresh volume appeared at the August 35 put line, where the $3.00 price of the contract implies a drop below $32 by late summer. A decline of this magnitude would put Moody’s within 1 dollar of its 52-week low.

We feel compelled to note in this regard that while the street applauded Moody’s quarterly numbers thanks to effective overhead cost controls, option traders are less broadly convinced. A look at total open interest shows more than twice as many put positions open as calls, a proportion that has remained largely stable throughout 2008.

Talisman Energy (TLM) –Shares in Canadian oil and gas explorer Talisman Energy dipped a marginal .94% to $19.96 despite reporting plans to divest its Danish division, Talisman Oil Denmark Ltd., to Norwegian Energy Co. Option activity swelled to more than double the normal level with buying interest on either side of the June 20 line. While the volumes are disparate, it is conceivable that some positions may have been bought together in an at-the-money long straddle play suggesting a move of $2.80 above or below the $20 line in the month of June. An elevated implied volatility reading on all Talisman options suggests about a 15% higher likelihood of this kind of price swing over the next 30 days than the company has shown historically.

Inverness Medical Innovation (IMA) – Shares in Inverness, the maker of Clear-Blue, Accu-Clear and Fact Plus home pregnancy tests, pared yesterday’s earnings-driven rally with a 2.6% decline today to $35.13. Today its options remain coveted instruments for forward-looking price bets, continuing to trade at 3.5 times the normal level. With the equivalent of more than 10% of its open interest in action, traders are staking bets on the call side, with May 30 calls trading to the middle of the market at $6.35 in what may be a proxy play on the underlying stock. Action in the June contract showed ratio call spreads going through at strikes 35 and 40, where traders bought twice as many calls for $4.00 apiece, possibly using the sale of 40-strike calls at $1.80 to defray the costs in part.

Onyx Pharmaceuticals (ONXX) – Onyx, the maker of so-called small-molecule cancer treatments that target proteins involved in tumor cell proliferation and growth, traded heavily earlier this week on supposed takeover chatter, and it may be lack of resolution on this front that has kept its option implied volatility so loftily elevated above the historic norm (at nearly 61%, the options market is pricing in one-fifth more possible price deviation over the past month than has been recorded). While shares are showing minimal price movement today, down .44% to $36.40, the distribution of volume picked up by our market scanners suggests traders bracing for summertime downside – hardly the action of a would-be takeover target.

Bearish credit spreads appear to have gone through in the June calls at strikes 40 and 50, with a trader selling the lower-strike call for $2.00 against the purchase of a 55-cent call at the 50 strike. The trader in this case is hoping that the spread between the two strikes will narrow and that both contracts expire worthless, allowing him or her to pocket the initial credit as the maximum profit for the transaction. Out-of-the-money put buying occurred in the August contract at the 25 strike, a position whose 70-cent price tag implies a break below Onyx Pharmaceuticals’ 52-week low of $24.60 by late summer.

Rebecca Engmann Darst contributed to this report.

Comments

[riceguy]

I read your columns often and like what you write, that's why I posted here to ask for your opinion on CALM. Last Friday after 3pm, CALM had the following calls:
20 vol 8941, Open Int 358;
22.5 -8909-371;
25-52748-2233 ,
but by Monday morning, the Open interests are 288 for 20, 109 for 22.50 and 266 for 25.
My question is what happened, something was done over the weekend, how????
Here's more info on CALM, it has 13M shorts as of last Friday, the float is about 12M.
Any idea? anyone has any comments?