Monday's Options Report: CROX, Clorox, ZMH, CELL, SEED, IBN

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Includes: CELL, CLX, CROX, IBN, SEED, ZBH
by: Interactive Brokers

Rebecca Engmann Darst co-authored this article.

(NASDAQ:CROX) - Shares in squishy, novelty shoe maker Crocs lost 8.4% today to trade at $30.00 - compounding a 50% decline in its share price since October. The catalyst behind the slide – and concomitant 11.4% gain in implied volatility to 93.7% - appears to be a story appearing over the weekend in the Rocky Mountain News daily, which reported that the Colorado-based company instituted mandatory vacation time for its workers in late December because of a slowdown in business. With nearly 54,000 options in play ahead of the noon hour, Crocs also rated among the most actively traded tickers on our platform. Fresh positioning in the front month contract appeared to favor fresh strangle buying between the 27.50 and 32.50 strikes in anticipation of continued share price volatility for the duration of the month. Calls at the January 35 level traded to buyers and sellers more than 5,000 times despite the value of this position coming off 33% overnight.

(NYSE:CLX) – A report in the New York Times this week reported that household chemicals giant Clorox will use its recent acquisition of organic body products maker Burt’s Bees as a platform for the launch of “greener” products and practices. Options trading in Clorox quickly accelerated to 3 times the average volume by noon as its shares traded flat at $63.44. Today’s volume appeared concentrated in February 65 puts, which were shorted at around $2.40-2.45 in possible anticipation of more upside in the month of February for Clorox – possibly a bullish read on the current zeitgeist for environmentally gentler chemicals. Call positions in Clorox already outweigh puts according to open interest by a factor of 1.4.

(ZMH) - Our market scanners detected an overnight tripling of volume in Zimmer Holdings, the maker of reconstructive orthopedic surgical implants. Shares in the company are reading 3.5% higher this morning at $68.77 – a 9% premium on its 52-week low. Implied volatility, meanwhile, is continuing its upside divergence from the historic reading, extending a drift that began just before Christmas and now at 31.5% shows option traders anticipating about 50% more volatility from Zimmer shares than they have shown historically. Today’s volume shows 3 times as many puts in play as calls, concentrated mostly in February 65 calls, which were bought freshly at around $1.75 in a contrarian play on today’s share price movement. Other traders appear to be taking advantage of the recent implied volatility trend in Zimmer options by selling volatility in the February contract via the 60/70 strangle, taking the $2.60 premium in confidence that implied volatility is likely to recede after Zimmer’s January 29 earnings report – and that its share price will remain bound between the range of the strike prices, despite having traded as high as $94.38 over the past 52 weeks.

(NASDAQ:CELL) – News out of telecom equipment maker Brightpoint that it has been tapped to provide distribution services for GPS maker Garmin sent shares 2.8% higher to $14.01 by the noon hour. Our scanners detected an increase in option trading volume to more than 8 times the normal level, as it appeared that some traders picked their moment to take profit in April 15 puts. These contracts sold for around $2.15 today – possibly the closing sale of positions entered for $1.00 apiece back on November 13, when Brightpoint shares were trading 28% higher at $18.18.

(NASDAQ:SEED) – On Friday we noted a keen level of bullish option trading interest in Origin Agritech, the China-based producer of hybrid crop seeds. Over the weekend it was reported that an Origin executive, speaking at an industry conference in Asia, reported that corn price are up 40% year-on-year in China, and characterizing the present macro outlook as “favorable.” We surmise that it’s this level of buzz that pushed Origin shares up some 1.7% over the noon hour past the $10.00 mark, as options traded at nearly 20 times the normal level and implied volatility skyrocketed 17.0% to 135.12%. A look at volume distribution shows more than 5 times as many calls moving as puts, but much of this appears tied up in call shorting at the January 12.50 strike in a contrarian play against the company’s current share price momentum.

VIX – CBOE Vix futures index – declined after having reached its highest point in 26 trading sessions. Nervousness mounted for equity markets after a promising futures-led rally caved in leading to broad index declines. However, just ahead of the noon hour markets are once again higher. The volatility index has been on the rise since the winter solstice marked the shortest day of the year on December 21. The weakest start to equity trading since 2000 has been fuelled by weakening survey activity and now rising unemployment. On Friday that took the S&P 500 index to within 6 points of its November low at 1405, while investors clearly felt the need to test support at 1403 to start the week. Despite media reports today that a prominent forecaster now predicts recession odds for the U.S. at just over 50-50, the Vix index has failed to trade above 25 throughout all of the holiday season through today. It seems that even with the loudest growl from the fiercest bear, there is some prevalent rationale amongst the investor community. In options activity call trading insuring speculators against further equity market declines was again in ascendancy. The January call options at both 25 and 27.5 strike prices traded on volume of above 5,000 lots apiece. The at-the-money series currently carries a 43% chance that the Vix index will exceed 25 at expiration. Also active today were February calls at the 30 strike where 2,400 lots traded. Carrying a delta of 24 indicates about a one-in-four chance of a 26% jump in the Vix by February’s expiration.

(NYSE:IBN) – Icici Bank (ADRs) – Shares in leading Indian lender surged some 8.6% to $66.97 Monday. Options on the stock were extremely active with an equivalent of one in five of the current open interest at play on Monday. Most active series were the January 65 and February 70 calls. The January series traded on volume of 5,200 lots within the existing value of open interest, while the February series was clearly fresh investor interest in the stock given the lack of current positioning at the 70 strike. In November $70 acted as resistance for the share price ahead of a 29% slump in the share price. Today’s surge in the share price possibly comes in the expectation that emerging markets still look healthy and that so long as financial companies there retain a clean bill of health against ongoing U.S. mortgage matters, they are possibly a viable financial haven. In Indian trading, Icici shares rose to a record in local currency as speculation grew that the securities brokerage arm of the bank would be listed imminently. Shares in the U.S. remain just a shade below their November peak.

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