Rebecca Engmann Darst contributed to this report.
General Electric (NYSE:GE) – With a little over three weeks to go before September’s options expiration, an investor seems to be less pessimistic over the prospects for shares in consumer-giant, General Electric, than today’s 2.7% share price decline otherwise shows. While we can’t tell if this is the action of one trader, but a look at the footprint left by time and sales data indicates to us that a premium seller is content to wear the risk of a further decline in shares at the conglomerate beneath $25.80. An investor appears to have sold almost 20,000 puts at the September 20 strike for 20 cents earlier today, which would imply risk piling up in the event of a further 8.8% decline in the share price. There is also significant activity of 16,000 lots at the lower 24 strike where options were sold for just 8 cents premium. If we’re reading the direction properly today this is a fairly brazen risk to take unless the premium seller already has a short position in the stock and doesn’t mind buying at the $26.00 strike.
Lehman Brothers (LEH) – Options implied volatility stands at around 156% on Lehman’s to start the week and once again its shares are one of the most actively traded options series at the start of the week. Financial shares are broadly lower and last week’s enthusiasm for Lehman’s has taken an 8% setback today. Early trading in options at the front September contract was perhaps indicative of some strangle selling across three strikes, before a clear trend emerged showing greater appetite for puts at the 10 and 13 strikes. There was again some buying at the 7.5 strike . In the deferred April contract an investor has traded 1250 puts at the 10 strike at a cost of 2.37, which is a little changed on Friday’s closing price. In the January contract the 15 puts have also traded close to 2,000 times at 4.75. Implied volatility there stands at 112%. If this investor is buying puts they clearly feel that the drama has longer to run and shares must move significantly lower to see this trade break even.
Citigroup Inc. (NYSE:C) bucked the poor Wall Street start as its shares rose for most of the morning. The options data seemed supportive of this rise while a decline in options implied volatility also suggested a loosening of the stranglehold around the neck. Most options volume appeared at the September 20 and 22.5 strikes where almost 10,000 lots traded. Premium at the latter eroded 20% over the weekend and this investor was picking long equity rights here at just 8cents. Nevertheless shares in Citigroup would still need to rebound by 22.6% between now and expiration in three weeks time to break even.
Research in Motion (RIMM) – After a positive start, which saw shares buck broad technology market weakness today, RIMM dropped 2.4% to stand at $128.00. It’s difficult to see any stand out trade here – calls outpace puts by 40% at this hour but no broad position sticks out to us just yet. RIMM’s share price is once again pushing up against resistance at $135, which represents a 2-month high. The at-the-money calls seem most active but volume profiles don’t suggest any sizzle above the 52-week high at $148.13.
Advanced Micro Devices (AMD) – August has been a good month for AMD, whose share price has risen 50% from a 52-week low at $4.00. Today its shares are defying gravity and are 3% higher at $5.95. Its options volume registering a reading of 20,000 by lunchtime is indicative of further bullish positioning in the coming weeks. Call trading is almost five times that of put trading today with September 5 and 6 strikes well sought after. The 7 strike is heavily traded in the October contract. Both options implied and historic volatility remain elevated and close to 70% on this company.
SunTrust Banks Inc (NYSE:STI) – An investor clearly believes that there is the potential for the share price at SunTrust Banks to head lower again. Its shares have rebounded sharply above the 52-week low of just above $25.00 back up to $47.50. However, today’s 5.8% slide to $40.26 was accompanied by what appears to be a fresh put spread at the October 35 and 40 strikes at a net premium of 2.00. Should its shares decline to $35 or below at expiration the investor would reap a maximum of $3.00 per contract on this bear play.
Tellabs Inc (NASDAQ:TLAB) – With shares neatly off a 52-week low, an investor has traded a tidy 8,000 block of September puts at the 5.0 strike for a dime. Shares are slightly lower today at $5.29, but this could be a closing trade judging by existing open interest numbers. The volume represents 13-times usual activity.
Alpharma Inc (ALO) – With shares at $35.77 and standing proud by 3.7% today, options volume – although thin – is above average with a 750-lot trade in the December contract at the 25 line for 10.00. It’s a significantly in-the-money trade and could be a closing position.