Tuesday Options Outlook: BUD, AAPL, LEH, BIIB, SFD, LRCX, XMSR

Anheuser Busch (BUD) Shares in Anheuser Busch are flat after the long Memorial Day vacation without any sign of a takeover or merger announcement over the weekend. All of Friday’s euphoria is being left to ferment and it’s hard to say that the story has lost its fizz just yet. Reuters reports that talks could start this week although InBev is keeping quiet about its plans despite Friday’s FT report noting that a financing package had previously been put in place. In the options market, it would appear that traders don’t want to be caught out in the cold and seem to be rolling up the strike in June, July and September calls, where existing positions at lower strike calls (50 and 55) are being sold in exchange for the higher 60 strike calls. Notably, traders seem to believe that the current share price buoyancy surrounding BUD is likely to remain in vogue. That means that seem prepared to sell June puts at the 50 and 55 strikes while repositioning for a bursting of the bubble in the July contract where the 50 strike puts proved attractive today.

Apple Inc. (AAPL) – There seems to be a further wave of optimism from the options crowd in early trading in Apple options Tuesday. The put/call ratio shows almost twice the number of bullish calls in play compared to put-action following Goldman Sachs addition of Apple Inc’s shares to its Conviction List.  For the maker of iPods and iPhones the forthcoming 3GiPhone launch in June might assist second half sales of iPhones according to the broker. Options traders looked for further upside in the share price by positioning themselves long of call options at the July 180 and 190 strikes as well as in the October contract at the 180 strike. Current implied options volatility of 42.2% stands a shade above that on the underlying share price, which reads 38.2%.

Lehman Brothers Holdings (LEH) – Options volume in this securities broker was the busiest individual financial security in early trading as traders continued to look for downside following last week’s accusation of accounting shenanigans from hedge fund manager, David Einhorn. In comments last week he noted what he felt was a discrepancy between the actual first quarter writedown of $200 million on collateral of $6.5 billion, which Mr. Einhorn says doesn’t tally with a footnote claiming that 25% of Lehman’s CDO obligations were junk-rated. In other words he smells a rat and traders appear happy to seek out potential profits within the options market. In early going on Tuesday put trading out paced call trading by a factor of seven. After a shaky start shares in Lehman’s have rebounded with the price trading either side of unchanged mid-morning. Traders are looking for deeper downside exposure than the current $36 share price. In the Jun contract there was significant volume at the 17.5 strike where more than 3,000 contracts traded at around 0.40 each. The most populated contract was at the June 30 strike where put trading exceeded 7,000 lots at a price implying a breakeven expiration price for the stock at $28.25. Options implied volatility continued to rise on the session but having reached close to 100% early on, has subsequently eased to read 88.4%.

Biogen Idec Inc. (BIIB) –  Options are trading at almost five-times their daily average on the maker of treatments for multiple sclerosis and Hodgkinson’s lymphoma, Biogen Idec. Shares are higher by 2.9% at $62.82 while options activity is firmly skewed towards the call side. The June 65 and 70 calls have been most active spread involving around 10,000 contracts, which appear evenly split between buyers and sellers.

Smithfield Foods (SFD) – Around 7% of the overall outstanding options open interest was in play early on in hog producer and pork processor, Smithfield Foods Inc. the trade appeared to center on upside exposure for the stock with the January contract active on what appears to be fresh interest at the 40 strike where some 7,306 lots traded at a premium of 0.95 per contract. Implied volatility at 38.1% exceeds that on the underlying share price by almost one half.  There is no news out to support a valid story on the company that we can spy. However, the rising cost of feedstock for cattle in food lots could be the driver here with greater potential profitability for the company from rising demand for pork products.  Shares in Smithfield are already knocking at a six-month peak at $30.91.

Lam Research (LRCX) – A near 5% bump in shares at chipmaker Lam Research to $40.00 was also accompanied by heavy options volume of eight-times the usual magnitude. An analyst upgrade noted the conservative nature of the current share price and raised his own target to $47.00. Call options were well sought after at the Jun 35,40 and 55 strikes.

XM Satellite Radio Holdings Inc. (XMSR) – Following a 2.9% slide in shares to $10.70 today, it appeared options traders sold 12.0 strike calls in June in exchange for more defensive positioning in the 11.0 strike puts.

Rebecca Engmann Darst contributed to this report.