Wednesday's Options Report: C, V, BCO, VLO, CBI, MNTA, CLX

Citi trades lower on stock-sale news…but call traders are stoked.

Citigroup (C) - Today’s news out of Citi that it was raising the scale of its stock offering to accommodate robust public demand for its shares (pooh-poohing the dilution of current shareholders) sent its stock price down nearly 3% to $25.57 as of the noon hour. With nearly 176,000 options actively traded today, Citi is one of the heaviest-volume tickers on our platform today, and the prevailing trend appears to favor upside exposure via calls. Heavy buying was observed at the 27.50 call strike in the May and June contracts, while some traders looked to lock in bullish prices even further afield, paying $3.00 per contract for the right to buy Citi shares at $30 apiece by January 2010.

The Brinks Co. (BCO) – Intriguing spread activity in The Brinks Company, maker of security systems for homes, cars and ATMs, sent its overall volume to more than 12 times the normal level. The company’s first-quarter numbers beat street estimates and with full-year guidance for profit growth in the high single digits, the market offered its reward in the form of a new 52-week high at $73. Option traders are looking for that price to hold – and then some - by positioning in calls. The 10,000-lot spread that went through in the January ’09 contract appears to involve the purchase of deep-in-the-money calls at the 65 strike for $13.17 against the sale of calls at the 90- strike for $1.27 per contract, putting a theoretical ceiling on the level of upside Brinks can achieve at the start of the new year.

Visa (V) – A 2.4% gain for its shares to $82.79 appears to have jump-started the speculative appetites of call traders in Visa. With nearly 130,000 options trading by noon, more than 4 times as many calls are trading as puts, and these at the out-of-the-money strikes we observed prior to its earnings announcement earlier this week. Two-way traffic is occurring at strikes of 85 and 90, while the 95 call strike attracted plenty of buyers at $1.05. Can Visa hit $100 in May? Traders have bet on that possibility more than 3,700 times today even though the 20-cent price of that position reflects just a 6% probability of it actually coming true.

Valero (VLO) – Billionaire oil trader Boone Pickens’ prediction today that oil prices could hit $150 this year provided the opening salvo in a new round of speculative fire in the options market. The news added an extra pinch to the post-earnings decline for shares for North America’s largest refiner, Valero, down 6% to $48.45 today. Much of the 70,500-strong volume in its options appears tied up in out-of-the-money call spread activity in the June contract, with a trader buying the $55 calls for 90 cents against the sale of the 60 calls for 34 cents apiece in a debit spread indicating a reasonably strong recovery heading into the summer.

Chicago Bridge & Iron (CBI) - Shares in CB&I, which specializes in engineering, procurement and construction for the commodity industry, tanked 16% to $40.56 following an earnings miss. With options trading at 8 times the normal level, implied volatility at 52.7% is showing a slight elevation above the 51.0% historic reading, having been flat for much of the morning. Early market action showed traders willing to sell premium in the form of May puts, which were pumped by as much as 500% in the May 40 strike and 390% at the May 45. Brisk two-way traffic exceeding open interest was observed in May calls at strikes 35, 40 and 45.

Momenta Pharmaceuticals (MNTA) – Shares in Momenta, which develops technology-enabled generic drugs and so-called re-engineered drugs, rose 2% to $14.94 today, adding further polish to a very good year that has seen its stock price more than double in value. Earlier today the company announced that had received regulatory guidance from the FDA for its drug M-Enoxaparin, a generic version of the blood-thinner Lovenox. Our market scanner picked up on a 6-fold increase in option trading activity owing to volume in January ’09 puts at the out-of-the-money 12.50 strike. The $3.30 price of the position reflects no intrinsic value to the contract. A look at open interest shows that of Momenta’s 45,000-strong contracts open, twice as many are held on the put side.

Clorox (CLX) – Option traders are staking 5 times as many bets on the price direction of household chemicals maker Clorox than usual. Shares are .86% lower at $53.97 and its implied volatility reading at nearly 24% shows the option market looking for 51% more risk of price fluctuation over the next month than it has shown historically. Interestingly, while the company is due to report earnings tomorrow, traders have largely eschewed the front-month contract in order to sell July calls at the 55 strike for $1.75.

Comments

[OptionTrader]

Interesting. cgi.ebay.com/ws/eBayIS...