Friday Options Outlook: BEAV, TSRA, AIG, XLF, CHK, WB, FMCN, WMB, APH

BE Aerospace (BEAV) – Options in BE Aerospace, the world’s largest maker of aircraft cabin interior products, showed an abrupt 18% spike in implied volatility this morning as shares nosedived 11.3% below the 52-week low to read $26.41. Earlier this spring the company raised its 2008 earnings guidance thanks to higher sales of plane seats and greater demand for its engineering services, a development that came as cold comfort to a share that has still lost half its value this year in a challenging environment for the airline industry in general. We have yet to ascertain what reports are moving its stock today, but the upshot appears highly ominous. With its options trading at nearly 7 times the normal level, twice as many calls are trading as puts, characterized by fresh selling in out-of-the-money call strikes in the July contract at the 30, 35 and 40 lines. Traders have bought into the July 25 puts at $1.50 per contract, anticipating even further declines below current levels and driving up the value of that position by some 200% overnight.

Tessera (TSRA) – Options in Tessera Technologies, billed as the world’s leading provider of miniaturization technologies or “chip-scale packaging,” are trading at nearly 5 times the normal level against a 3.8% decline in share price to $19.11. The development follows no immediate news catalyst out of the company, which recently prevailed in two separate patent protection suits against Infineon and Micron Technology. The company has patent actions pending against 13 other respondents, for which hearings are reportedly scheduled to begin on September 22. We wonder if the company’s tie-up in litigation may explain the 30% spike in its implied volatility reading – more than any other company on our platform  - which now ticks in at 95.5%, towering above the 67.9% historic reading on the stock. This suggests that the options market is pricing in about 27% more risk over the next 30 days than it has shown historically. Puts are moving at triple the rate of calls as traders appear keen to pile into put positions at the June 15, 17.50 and 20 lines, with evidence of selling at the 22.50 line. Up to today, option traders held more than twice as many bullish call positions as puts in Tessera Technologies.  

AIG (AIG) – An article appearing in today’s Wall Street Journal revealed that insurance giant AIG is under investigation by the SEC on allegations that it may have overstated the value of credit default swaps backed by subprime mortgages. Depending on the findings of the initial probe, a criminal investigation could follow. A 6% drop decline in the value of AIG shares to $34.15 – a new 52-week low – was accompanied by a 22.6% ripple higher in implied volatility, suggesting amplified risk to its share price in coming weeks. Option traders are buying protection in this high-volatility environment, buying June puts at strikes 32,33, 34 and 35. Calls at the June 35 line are trading to buyers and sellers.   

Financial Select Sector SPDR (XLF) – Early activity suggests another session of large-block directional volumes in the financial sector ETF, which is off 3% at $23.87 today amid broad losses for stocks. With more than 258,000 options trading in the first 90 minutes of the market, we observe more than twice as many calls trading as puts, however, with what may be long interest at the June 24 straddle, coupled with heavy buying in June calls at the 25, 26, and 27 strikes. These positions are trading at a near-50% discount to yesterday’s levels on the share price action in the ETF.

Chesapeake Energy (CHK) – Shares in oil driller Chesapeake Energy coasted to a new 52-week high with today’s 5% gain to $58.94. Earlier today the company issued an update on its activities in the Haynesville Shale field straddling Louisiana and Texas, which has been the site of continuous drilling success for the company, which according to this morning’s press release, plans to continue leasehold acquisition efforts in the area.  With some 73,000 options active, the bias of calls to puts by a factor of 4.5 shows traders expressing confidence in further assays past the 52 week high. Traffic in June calls at strikes 55, 60 and 65 is trading to buyers and sellers, while the July 65 calls have been bought heavily. Buying interest in January calls extended as high as the 80 strike for $2.20, despite the option market pricing in a less-than 1-in-4 chance of Chesapeake breaking $80 by 2009.

Wachovia (WB)– A Goldman Sachs analyst report suggest that Wachovia may cut its dividend by half after the leave-taking of CEO Kennedy Thompson this week has shares in the country’s 4th-largest bank nursing a 6% decline to $20.27. With more than 41,000 options in play, option traders are clearly on alert for unrest in Wachovia’s share price, with implied volatility elevated more than one-third above the historic reading on the share price. Nearly twice as many puts are trading as calls early in the session, with what may be put activity between strikes 20 and 22.50 in the June contract. Put volume in the July contract is extending into the teens, with some 1,800 lots trading at the 17.50 strike on an implied volatility of 75% - well above the 67% implied vol on all Wachovia options.

Focus Media Holding ADR (FMCN ) –  A precipitous, 12.4% drop in the value of American depositary receipts in Chinese ad operator Focus elicited a sharp increase in option trading volume to 4 times the normal level. The company trimmed its Q2 guidance during the Asia-Pacific session due to lower ad revenues following the recent devastating earthquake in China. This morning’s active volume equals about a quarter of its total open interest in play, as the elevation in implied volatility (at 67%, implied volatility on all Focus options indicates about 18% more price risk to Focus shares than they have shown historically). Most active buying interest has been defensive in nature, at the front-month 35 and 40 put strikes, but it should also be noted that June calls at the 35 and 40 strikes have traded to buyers and sellers – the former strike in excess of open interest.

Williams Cos Inc (WMB)  – A 1% gain this morning for Oklahoma energy company Williams has the company’s share price poised at a new 52-week high. It looks like a trader may have taken the opportunity to protect a short position entered in the stock at this high level by putting on a 2,500-lot short collar in the January contract, selling the 35-strike puts for $1.75 and buying the 42.50-strike for $2.95 to protect the short stock position against continued gains between now and January. Williams shares have gained more than 12% in the past 3 months.

Amphenol Corporation (APH)   – Shares in Amphenol, the maker of coaxial and fiberoptic cables for cable television and aerospace applications, declined 1.7% to $48.04 today, still just a dollar and change off its 52-week high. Shares are up 4% for the year to date. An increase in option trading volume to more than 9 times the normal level showed fresh volume flowing to June 45 puts well in excess of open interest. July 50 puts also traded freshly. Combined volume today amounts to almost half the open interest, a quantity absorbed twice as much by open put as call positions. Implied volatility on all Amphenol options suggests 43% more price risk over the next 30 days being factored into the options market.

Rebecca Engmann Darst contributed to this report.

Comments

[User 127919]

visa is a 280.00 stock in two years time . for long term and pbr is a 500.00 stock find out. a company rent nearly all deep sea rig , these rig can bring in 700,000 to a million a day. what country will spent that kind of money, if the find was not the biggest or the largest sweet crude oil on earth .you be the judge. gbp