BMY – Bristol-Myers Squibb – Last week a court ruling gave the green light to both BMY and Sanofi-Aventis of Paris to seek compensation from losses resulting from Canada’s Apotex Inc. which flooded the market in 2006 with a generic version of BMY’s blood-thinner, Plavix, which is the world’s second-largest selling drug. The loss of as much of $1.75 billion in sales over a three-week period at the time could be a small windfall for the companies. While shares at Bristol-Myers are down by 0.6% at $22.37 today, there is plenty of optimism conveyed through its option trading where investors paid 65 cents for around 6,000 call options securing rights to purchase the stock at $22.50 by Friday’s close later this week. However, heaviest volume was seen in the March contract at the 25 strike calls were more than half of total volume of 16,890 contracts were bought at a 1.33 premium on average. In the January 2010 contract there was also a large chunk of calls purchased at a 63 cent premium at the higher 35 strike call. The share price at BMY has been rising during the past three weeks and today reached its highest price since July. Today’s hectic call activity saw a boost to implied volatility on options where the measure rose to 55%.
NYX – NYSE Euronext - In the January 20/30 strangle an investor paid a net premium of 2.50 per contract for a 10,000 lot strangle, which also involved a short position in the shares of the exchange with stock trading at $26.70. A long strangle traditionally sees an investor taking an option position in hopes that the underlying share price will exhibit higher volatility and will burst one way or the other. In this case faced with a 2.50 premium the investor would want NYSE shares to climb above $32.50 or fall beneath $17.50 by expiration. Earnings are not due until February.
JCP – JC Penney Co. Inc. – Shares in retail are under fire once again today and JC Penney is down by more than 5% at $19.32. Heavy put volume appears on our market scanners at the January 15 strike where some 17,000 lots appears to have been largely sold. Given the fact that open interest of around one-third of this amount is in existence the scenario could be that a short-seller of underlying shares is seeking additional yield by writing puts at a strike below the current share price. This is the opposite trade to a covered call given it’s initiated by someone expecting a share price to fall rather than rise. If the share price reaches that strike price the short put holder might be obliged to deliver shares at $17.50. In exchange the investor has taken in a 60 cent per contract premium, which he retains regardless of the future fortunes of JC Penney, for better or for worse.
MI – Marshalls & Ilsley Corp. – Commercial banker, Marshalls was also a victim of a large amount of put-selling Monday when investors drove down put premiums expiring in January at the 7.5 strike. Its shares today are trading at $11.80 and rebounding as we update. So the situation might be a little different than with JCP here. Investors might be taking the view that the bank’s shares won’t slip to the strike price, which would require a further 36% slide. The 52-week low was just set in November at $10.26 and it could be that thrill-seekers see writing premium here as money in the bag.
VFC – VF Corp. – Sports and jeanswear clothing company, VF Corp. has also seen some heavy options activity today where volume almost equal to its current open interest is at play. We’re left guessing what the investor’s game is here since the action took place at a mid-market price involving 11,260 put options at the January expiration with a strike price of 40.0. Shares in VF Corp. are lower by 3.4% today at $51.27.
MGM – MGM Mirage – The company has agreed to ditch its Las Vegas strip Treasure Island casino for $750 million, which will free up capital and add liquidity according t the company. Shares jumped by 10% to $11.80 but option traders didn’t take the news as a green light for the company and played both bull and bear positions accordingly. In this week’s expiring contract there was a good two-way flow of options volume at the 12.5 strike , while in the January contract investors took the view that while the spotlight might be off the stock today, things could easily deteriorate as they bought 1,500 put options at the 10.0 strike.
JPM – JPMorgan Chase – As investors prepare for earnings from Goldman Sachs and Morgan Stanley this week they are pricing in ongoing revenue declines for investment banks and one would be forgiven for sticking with the nascent view that the investment banking model is dead-in-the-water. Investors continue to sell JP Morgan, whose share price is down 6% at $29.00. Investors sold December 30 calls this morning while two-way traffic was seen in the 30 strike puts where some investors paid premiums of 1.90 to establish fresh protection against further losses.
CTSH – Cognizant Technology Solutions – An investor took profits on a neat position banking on a decline in computer-services provider, Cognizant when he sold out of a put position offering rights to sell shares in the company ahead of Friday’s expiration at a fixed share price of $20.00. Last Tuesday an investor paid 1.60 per contract for 1,000 put options, which were cashed in today at 2.70 rewarding the investor with a $110,000 reward for calling the direction of prices right. Shares fell from $19.19 at the time to $17.43 today. Elsewhere option activity focused on the April contract where investors snapped up puts at the 17.5 strike at a 3.40 premium where 2,000 fresh positions were established. Shares would need to fall to $14.10 by expiration for the investord to make a profit.
