Tuesday's Options Report: RSTO, CPN, LPNT, YHOO, V

Restoration Hardware (RSTO) - A 3.8% gain for shares to $4.32 in the trendy housewares chain occurred in tandem with unusual option activity at the May 7.50 line. It appears here that 15,000 lots traded to each side in fresh positioning that sent total option volume to some 968 times the normal level – it’s unusual to see a straddle trade so far from the money, which leads us to believe that the position may be a so-called conversion play tied to stock. Implied volatility in Restoration Hardware options shows a 51% elevation above the historic reading, suggesting greater price risk to shares over the coming month.

Calpine Corp. (CPN) –An analyst downgrade appears to be the catalyst for today’s 1.6% decline in shares of clean/renewable energy provider Calpine Corp. With shares at $20.40, our market scanner detected a quadrupling in option volume compared to the normal daily average. This volume occurred primarily in the September contract, where calls at the 22.50 strike traded to the middle of the market for $1.45, while puts at the 15 strike were bought for 65 cents. Disparate volumes at each of these strikes suggest the trades may not be related, though the purchase of the lower strike puts may indicate long-volatility strangles being deployed. Implied volatility on Calpine options suggests 39% more price risk to its shares over the next month than has been shown historically.

Lifepoint (LPNT) - Shares in Lifepoint, which operates 48 general acute care hospitals in 17 states, slid 3.2% this morning to $30.18, ostensibly on a negative analyst rating of the entire hospital operator sector by Citi Investment Research. The 9-fold increase in option trading volume detected by our market scanner suggests some trades may be taking a contrarian tack to this analyst move, by positioning in May 30 calls in excess of the open interest at that strike. These traded to the middle of the market at $1.40 – a 28% discount from yesterday’s levels.

Yahoo (YHOO) –Day Two of the “silent standoff” between Microsoft and the unforbearing object of its acquisitive affections, Yahoo, continued today with a 1.6% decline for Yahoo shares to $26.00. Highlights from the 86,000-plus options trading in the first 2 hours of the market show 1.5 puts trading for every call, with heavy volume at the May 20 and 25 puts possibly representing the closeout of positions opened last Friday before the strike deadline passed. It must be said that there are signs of willingness among traders to position for a conciliatory break higher in Yahoo shares – specifically via buying at the May 30 call strike for 40 cents.

Visa (V) - Robust sales were tempered by a more cautious outlook in Visa’s first quarterly report as a publicly traded company. Shares are holding up fairly well with a .49% decline to $75.26. With implied volatility coming off 30% off the numbers, twice as many calls are trading as puts today, most of it in the front-month and trading to buyers as well as sellers. Recent days have seen a huge build of positions in speculative call-side positions at May strikes of 75 and higher, and today’s volume may indicate traders closing out those positions.

Rebecca Engmann Darst contributed to this report.

Comments

[OptionTrader]

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