Wednesday Options Update: FAF, EMC, BARE, GRA, HBC, BWLD, AEP, ELN, XLF

Rebecca Engmann Darst contributed to this report.

EMC Corp. (EMC) – Aggressive call-buyers have zeroed in on EMC Corp, whose shares are up 5.3% to $14.76, but with options volume in excess of 200,000 lots ranks among the top-five volume movers on our scanner – outmoving even most major financial issues today. Implied volatility is up nearly 43% on the session – more than almost any other ticker on our platform as option traders seek fresh positions in August and September calls at the 15 strike, which are trading primarily to buyers on volume as much as three times the open interest (in the case of the August contract).

First American (FAF) – In what’s been a tough week for insurers (following an ignominious earnings miss for MetLife) and on the eve of its own before-the-bell earnings announcement, shares in title insurer First American took an 8% hit to read $22.08. Implied volatility on its options rose nearly 35% to 93.1% - twice the historic reading on the stock and a return to July 15 highs – all of which suggests an unusually high risk premium being added to the mix of its options With the equivalent of nearly 20% of its open interest in play, and 5 times the normal daily level, today’s volume is overwhelmingly centered on the put side, with traders seeking fresh positions in August puts at the 17.50 and 20 strikes.

W.R. Grace (GRA) –  Reports circulated earlier today of a possible takeover bid by BASF has sent options volume to 10.5 times the normal level as shares trade 5% higher at $24.70. Traders are playing this in the September contract with heavy buying at the 27.50 call strike. 25-strike calls have traded to buyers and sellers. Implied volatility at 49.6% compares to a historic reading of 44.6% on the underlying stock.

American Electric Power (AEP) – Shares are up 1.1% at $39.88 on the eve of earnings, with options trading at 11.7 times the normal level due to some unusually bullish positioning in November and January. November 40-strike call were bought on volume of 1,000 lots for $2.05, with the upside extending into the January 47.50 calls, where more than 7,700 lots were bought for 45 cents. A move of this caliber would put American Electric Power within range of its 52-week high of $48.67 which was reached back on December 10, 2007.

Buffalo Wild Wings (BWLD)   – Better-than-expected Q2 earnings sent shares in this casual-dining outperformer 12.7% higher to $35.00. An increase in options trading volume to 3.5 times the normal level showed traders buying into September 40 calls at $1.30 apiece – a move that would put Buffalo Wild Wings within a dollar of its $42.12 52-week high by mid-September. Shares are up nearly 50% for the year to date.

Bare Escentuals (BARE) – Shares in Bare Escentuals, the maker of mineral –based cosmetics that’s due to report earnings after the close today, rose 2% to $17.04 today as we registered a rise in its options trading volume to 18 times the normal level. Option traders are positioning conspicuously contrary to the share price action in Bare Escentuals, with puts outmoving calls by 60 to 1 and with fresh positioning at the August 15 line (trading at more than twice the open interest) and the September 15 put line, suggesting not just an earnings miss today but an extended period of share price doldrums for the cosmetics maker. Implied volatility is coming in at a three-month high at 79.3% against a historic reading of 68.4%.

HSBC Holdings (HBC) – Keep an eye on British bank HSBC Holdings – shares are up 2% today ahead of its interim earnings release on August 4. We should note that implied volatility has contracted a good deal (and consistently) over the past two weeks – having topped out at 45.9% back on July 11, it’s come off about 61% to read 28.5%, pulling below the 34.6% historic reading on the stock. This relationship between implied and historic volatility tends to make option premiums less dear than they would otherwise be, and it looks like a trader took the opportunity to position for downside via a 5,000-lot put spread in the September contract between strikes 70 and 80. A 5,000 lot call position at the December 80 strike may have been used to fund this.

XLF – Financial Select Sector SPDR -  Shares in the sector ETF are down .98% to $21.21 with more than 358,000 options trading with a slight privilege to puts by a factor of 1.4. Notable volume includes 2-way traffic at both sides of the front-month 21 line, heavy selling in December 20-strike puts on volume of about 20,000 lots (equal to two-thirds of the open interest at this strike), which could indicate a trader calling a bottom on financial issues by year’s end, a view that would be further reinforced by the 10,000-lot put spread that appears to have traded in the January contract between strikes 25 and 20. It looks like the trader may have taken a $2.54 credit per contract on this position in a bet on a pull above the upper strike by mid-January.

Elan Corp (ELN)  – Underwhelming data on its pipeline-hope Alzheimer’s drug bapinuzemab sent shares down 38.5% to $20.877, and while implied volatility on its options has come off a bit, at 71.5% it still measures well above the 59.6% historic reading which indicates continued risk premium being factored into the options prices. Heavy buying traffic at the August 38 call line looks like closing purchases at 5 cents apiece of contracts sold short on the 24 for $1.10. Traders are also content to take credits wagering against more dramatic downside, selling August 20-strike puts on volume 3 times the open interest at 75 cents apiece. The same tendency appeared in the September 20 puts, which sold in excess of open interest for $1.15 apiece.

Comments

[singh:]

huge call BARE

2008 Jul 30 06:17 PM