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Countrywide (CFC) – The mood grows ever more defensive in options of Countrywide after a Friedman, Billings, Ramsey analyst voiced what was sensed by many following Friday’s S&P downgrade of Countrywide (…”materially adverse change,” anyone?), suggesting that Bank of America would likely renegotiate its sale price for Countrywide to the $0-2 level or completely scrap the deal. Following a massive spike higher on Friday, implied volatility on all Countrywide options rose another 92% today to more than 133% - more than any other ticker on our platform. With more than 95,000 options in active play this afternoon, Countrywide is one of the most popular targets of the option trade today, and there’s simply no way around the defensive mood among option traders. Heavy put buying was observed in the Ma contract at strikes 3, 4 and 5, extending into the June contract at the same strikes, sending the proportion of puts traded to triple that of calls. Open interest has shown a very slight but stable privilege to puts for most of the year to date – we’ll be interested to see if the options chips are stacked differently in the coming weeks as Bank of America weighs its options.

Nautilus (NLS) – No pain, no gain, some say, and few companies have felt quite the level of pain as have shares in Nautilus. Shares in the beleaguered maker of BowFlex, StairMaster and Nautilus-brand fitness equivalent are up 6.3% to $4.22 ahead of earnings later today, where it’s worth noting that the share price has surrendered 70% of its value over the past year. While implied volatility shows the option market pricing in 50% more price risk to its shares over the next 30 days than it’s shown historically, given the unmitigated pounding the stock has already sustained, it’s difficult to imagine how much more abuse these gym rats can take. The carnage has got to stop somewhere. This could explain the inclination among some traders to buy June $5.00 calls for 35 cents apiece – a cheap bet on the light-at-the-end-of-the-tunnel scenario. However, we’re somewhat unsettled by the fact that today’s 10-fold increase in option trading activity witnessed so few directional bets on the front month – and that a 1,000-lot glut of volume in the January 2010 2.50 calls showed traders selling those positions for $2.70 apiece.

Estee Lauder (NYSE:EL) – Last week’s run of speculative plays on cosmetics maker Bare Escentuals may have set the tone for this week’s pre-earnings positioning in Estee Lauder. Shares in the makeup giant are up 1.5% to $45.00 this afternoon ahead of tomorrow’s quarterly numbers. Meanwhile, the 9-fold increase in option trading volume registered today appears lodged in puts (these by a factor of 30 to 1), both at the May and June at-the-money ($45) lines. This suggests a somewhat protective stance ahead of an earnings release that finds Estee Lauder within $3 of its 52-week high, and despite suggestion in recent days that cosmetics makers could benefit from consumers’ hesitance to shell out for higher-ticket beauty items like clothes or shoes. Open interest has shown a near 2-to-1 overweight of puts since mid-April.

Yahoo (NASDAQ:YHOO) – There’s no denying that option traders were among those caught off-guard by Microsoft’s decision to walk away from an increasingly petulant Yahoo board amid stalled takeover negotiations. The decision sent Yahoo shares down as much as 20% in early trading as the market instinctively yanked away the takeover premium that had padded Yahoo shares since the early February Microsoft bid. Shares have since taken back some of those losses and now read 14.5% below Friday’s closing level at $24.49. With calls outmoving puts by 3 to 1, it must be said that there is relatively little inclination among traders to see Yahoo shares plunge into the mid-teens, pricewise, though plenty of speculative two–way traffic is in evidence at strikes 22.50 and 25 in the May contract, while the sale of May 30 calls suggests no re-visitation of the original Microsoft asking price is imminent here. Traders appear willing to buy June 22.50 calls at $3.35 apiece.

Microsoft (MSFT) – Last week we noted that the fortunes of Yahoo and Microsoft appeared to be largely entwined – at least in the minds of many option traders. And while the stock market earlier on rewarded Microsoft’s “good dad” gumption in walking away from a thankless situation with gains, its shares have since reversed course by .21% to read $29.48. Option traders appeared willing early on to sell May 30 and 31 calls on heavy volume as the value of those positions eroded as much as 20%. The implication of this volume appears to be a view that while walking away from a Yahoo price tantrum allows Microsoft to maintain a modicum of dignity in the negotiation, it doesn’t solve the longer-term problem of its ailing online presence.

Anheuser-Busch (NYSE:BUD) – For the second time in a week, call volume and implied volatility in Budweiser parent Anheuser-Busch is showing an upward deviation from the norm. Last week, we intimated that the sudden flurry of upside positioning was the result of renewed merger speculation involving InBev (INBVF.PK). With overall option volume registering at 4 times the normal level, calls are out-trading puts by more than 7 to 1. Meanwhile, implied volatility has risen more than 25% today and now reads just under 28% - its highest level since January. Heavy two-way traffic is being observed in June calls at the 55 and 60 strikes, while September 60 calls sold off heavily. Shares in Anheuser-Busch are up 2.5% to $51.54 today, extending a 7.6% rally for the stock since April 25.

Continental Resources (CLR) – Shares in Continental Resources rose 16.2% to $50.93 – a new 52-week high – after the independent oil and natural gas explorer reported a 64% surge in Q1 profits. Option traders put 12 times as many contracts in play as usual, with heavy buying in June 45 calls for $6.30 apiece possibly attesting to the degree to which call options have served to fill the thirst for underlying shares. The high price of these June 45 calls may have been defrayed in part by selling in September 50 calls, which traded to the middle of the market at $5.90.

Cemex (NYSE:CX) – Options in Mexican cement producer Cemex are trading at more than 10 times the normal level today as its shares show a 1.7% gain to $28.49. The option activity appears heavily localized in the October contract, where it looks like short put butterfly spreads were used at the 15, 22.50 and 30 strikes in anticipation of volatile share price movement by October. Implied volatility at 38.5% currently shows a minor elevation against the 37.4% historic reading, as the current share price represents about an $8 premium on the 52-week low.

Marvel Entertainment (MVL) – Shares in Marvel, the comic book, film and merchandising giant, are up more than 7% to $32.46 – setting a new 52-week high - following the successful open of the summer blockbuster “Iron Man.” With option volume registering a 9-fold increase on strength of the opening weekend ticket sales, it looks like Marvel’s “Iron Man” franchise is poised to crush the competition with “boots of lead” (apologies to Black Sabbath.” The two-way traffic observed at the May 30 strike may be due in part to traders taking profit on existing positions given the day’s 44% gain in value for these contracts to $2.75. The trend for the remainder of the summer calendar is to buy calls at the 35 line – in June, this position costs just 95 cents. Implied volatility in Marvel Entertainment shares has remained largely constant, but still showing a persistent elevation against the historic reading – at 43.5% the implied volatility reading shows option traders pricing in 41% more price risk to Marvel shares than is already charted in the stock. This is a strong indication that there’s still plenty of juice in the “Iron Man” apparatus over the next 30 days before its share price falls to earth.

Sprint Nextel (NYSE:S) – Implied volatility in options of the nation’s third-largest cellphone carrier, Sprint-Nextel, rose more than a third to 83.6% this morning on reports that Germany’s Deutsche Telekom AG (DT) may be interested in an acquisition. A merger of the two companies would combine Sprint with Deutsche Telekom’s American T-Mobile division. The takeover chatter was sufficient to send shares nearly 4% higher to $8.19, with options moving at more than 8 times the normal level, with heavy buying at the May 10 strike for 15 cents apiece. It looks as though some traders may be deferring long-volatility exposure to the August contract, where similar volumes suggest that some long strangles may be going through at the $5 put and $8 call strikes – the $1.40 price of this position would cover the buyer in the event of a break to the upside past $9.40 or down below $3.60, though additional buying interest in the August 9 puts suggests that the bias here is strongly to the upside.

Rebecca Engmann Darst contributed to this report.

Source: Monday's Options Report