Tuesday Options Update: AIG, UBS, CIT, GE, DIA, DELL, GGP, TROW

AIG (AIG) – An increasingly morose waiting game on a Fed sponsored rescue for AIG –  a gesture at odds with the central bank’s ethos of late but ostensibly the company’s last hope – has shares down 37% to $3.00. Implied volatility continues to defy vertigo with today’s leap of one-third above yesterday’s closing levels to read 617.5%. With more than 310,000 options trading as of the noon hour, the price of the front month straddle at $2.60 is virtually indistinguishable from the share price – and indeed, when shares were trading at their lowest pall of the day at less than $2 the cost of option protection exceeded that amount. In contemplating AIG’s fate, we’re reminded of nothing so vivid as the thread of the spider’s web keeping the falling rock at bay in Jonathan Edwards’ “Sinners in the Hands of an Angry God” – which could explain why so many calls are trading today (outtrading puts by 1.8) as traders relinquish the company’s destiny to something larger. Directional calls on the stock seem pitifully inadequate, as ultra-low-strike puts and calls trade with relative balance to buyers and sellers at the 2.50, 5.0 and 7.50 strikes in September and October. 

UBS (UBS) – A momentary trading halt in UBS shares during the European session, owing to precipitous declines in the stock, has colored much of the trading action today. Implied volatility in UBS AG’s options is up some 35% on the session to 126.4% - more than twice the historic reading on the stock – as traders seek long positions at the 15 strike in the front month on both the put and call sides. Open interest up to now has favored the call side by the slimmest of margins in UBS. 

CIT Group (CIT) – Shares in CIT Group, the corporate and trade financing outfit whose shares have lost some 63.5% of their value this year, rose 13.6% to $9.09 on some positive analyst attention. While the share price has managed to remain above its July 15 lows, short positions in the stock have billowed seven-fold this year, and now total about 15% of the float. This suggests that some of the upside may be exaggerated by short covering. With options trading at 3 times the normal level, we observed heavy put buying in September 7.50 puts at 75 cents per contract, suggesting a continued measure of defensiveness into this contract expiration. The total volume at this strike totals more than twice the open interest. 

General Electric (GE)  – General Electric, terribly chastened lo these many sessions, has also recouped some early losses, currently reading 1.3% lower at $24.63. Upward momentum in its implied volatility reading may be slowing a bit, albeit still at record levels of 102% versus 34.3% historic volatility on GE stock (the implied volatility reading was as high as 106% earlier in the session). Buyers and sellers of September 22.50 puts are observed, but October traders are positioning for continued erosion below the lows, with buying in puts at strikes 21 and 24. 

Dow-indexed Diamonds Trust Series (DIA) – Shares in the Dow-indexed Diamonds Trust Series are nursing a .74% decline to $109.00 as earlier gains on hopes of a relenting government-financed bailout of AIG hit some ambivalence around noontime. For much of the session we’ve seen heavy buying in front-month calls at strikes 108 and 109, these strikes trading at 4 times the open interest, suggesting that some traders may be hedging short positions on Dow components with long positions in the ETF to protect against a snapback I the index. 

Dell (DELL) – Weaker forecasted demand for personal computers sent shares in Dell to multi-year lows with a near-10% smack to $16.21. Option volume in excess of open interest appeared in September 17 calls and puts, with interest extending into the October contract at strikes as lows as 15. This week alone, implied volatility in Dell options has risen about 27% as option traders have battened down for a recessionary shrinkage in demand that has put a premium on downside protection for Dell shares.     

General Growth Properties (GGP)  – Losses in the real estate investment trust space continue to accumulate, as evidenced by General Growth Properties. Shares have recovered from some early losses, posting a 4% decline to $22.81, occurring as options trade at 2.8 times the normal level amid what appears to be keen buying interest in October 20 puts along with 25-strike calls. Implied volatility at 84.3 is well off the highs for the session, but still robustly elevated above the 68.3% historic reading.  

T. Rowe Price (TROW)  -  Finally, we observed highly unusual options trading activity in investment management firm T. Rowe Price. Shares have pulled ahead from a flat opening to read 1% higher at $54.56, but fresh buying interest in deep out-of-the-money January 30-strike puts has driven options volume to more than 3 times the normal level today – suggesting traders positioning for a drop of nearly half the company’s share price by January 16, 2009. Implied volatility at 65.7% is elevated against the 48.0% historic reading. 

Comments

[User 263610:]

and to think i had DELL 17 Puts and got scared...and sold them out early...F#@&

2008 Sep 16 02:56 PM