Rebecca Engmann Darst contributed to this report
Magna International (MGA) –Shares in this auto-parts supplier are lower by 10.75% at $40.75 and today we’re showing volume above the typical daily average. Some 17,445 lots are in play and focused at the December 45 and 55 strike puts. The story is interesting at the very least. Today news of the abandonment of a $1.54 billion investment by a Russian auto-tycoon was revealed. He has decided to unwind a 20 million share investment in the company established in May 2007 when shares were above $40. His goal was to tap the expertise of the manufacturer in his own auto-empire. However, the fact that the credit-crunch has spilled over into share prices at non-related companies has caused not just a loss of half of his stake, but also a deterioration in the environment for the company. Curiously, in mid-September when shares were trading at $59.77 a sizeable chunk of 60 strike puts was established at no worse than 7.0. Today that position appears to have been closed at a price of 19.20 as shares slumped. At the same time a fresh long position has been established at the 45 strike put with the premium at 7.80. The situation is curious since the open interest on the options is a mere 9,238 contracts, largely centered on the December 60 put series. While today’s volume at twice the open interest reading is explained by the possible roll from one series to the lower strike, it could be that the Russian billionaire – if he’s the investor here – didn’t lose as much as appears at first blush.
Wachovia Corp. (WB) – Not too many financial companies tend to visit share price values of below $2.50 and then recover, but that’s exactly what’s going on at Wachovia today following the shock-delivery of news that Wells Fargo is muscling in on Citigroup’s bid for part of the group. The unexpected development has created a surge of 70% in Wachovia’s shares to $6.61 and has created a flurry of some 250,000 options contracts on the issue. This makes it number one listed equity on our volume scanner today. Nevertheless, reading the tea-leaves is more difficult given the fact that when liquidity gets drawn to an issue like we see today, it becomes an active traders market with volume always greater than any resulting change in open interest as traders open and close positions as they scalp positions. In the October contract the 5 through 10 strikes saw good flow of buyers and sellers on the call side while blatant optimism over a bigger rebound saw mainly buying at the 12.5 strike. On the put side some doubts were voiced on the sustainability of the rally with traders favoring the long side at the 5 and 6 put strikes.
Citigroup Inc (C) – On the flip side of that same trade was an unwinding of optimism on Citi’s shares, which took an 8% haircut to $20.70. Options on Citi were once again very active with pre-noon volume totaling 207,000 contracts. Call activity was finely balanced at the most active strikes (20 through 25) while October puts at the 17.5 strike had a firm bias towards buyers paying 71 cents. Meanwhile volume at the 20 strike put was sold.
Wells Fargo (WFC) – Right up alongside the divorcees comes heavy activity in options on the new groom, Wells Fargo. Its shares rallied 5.7% to $37.15 on the offer while options volume of 130,000 lots kept this issue on our most active board. The trade was a little more transparent here: The October 40 strike calls above the current share price were sold and indicate a belief that its shares are capped even if the deal occurs. The October 25 puts were also active on volume of 12,743 contracts and were bought today for 30 cents.
JPMorgan Chase (JPM) – It appears that option investors are breathing a little easier on this financial stock judging by the sale of the November call options at the 50 and 55 strikes. With shares less than 1% lower this morning at $49.43 and recoiling from a fresh 52-week high, options on both sides of the fence are losing value. Options implied volatility has declined overnight by 7% to 69%, which means that the price of the October at-the-money straddle has slipped from 6.69 to 6.14 today.
Northwest Airlines (NWA) – With crude oil lower andunemployment rising, it’s a mixed bag for the outlook for the airline industry. Shares at Northwest are just 1.5% higher at $9.87 but our screens caught a large trade in the December contract where the 7.5 calls traded 32,000 times at 3.10. Since this compares to open interest of more than 89,000 contracts, it’s hard to determine if this isn’t simply an investor closing a position.
American Tower Corp. (AMT) – Recently we have watched option implied volatility rise to a peak at 60%, while shares have trended lower. Today they are undergoing something of a rally and are ahead by 5.9% to $35.52. Our unusual volume scanner has picked up a pair of large trades going through whereby the October 37.5 strike puts were sold at 3.0 and perhaps traded against the purchase of a similar 10,000 lot volume at the January 35 strike at 3.80. The open interest at the January strike is less than today’s volume and so is undoubtedly fresh positioning. If this is a calendar roll the investor is carrying protection against a long stock position and today has rolled down to an in-the-money strike.