Today's tickers: RCL, CCL, BAC, OI, TROW & MSM
RCL – Royal Caribbean Cruises Ltd. – It appears that the damage has been done but is not over by any means for RCL. Barclays drastic reduction of the cruise line's target share price to just $1.00 from $20 appears to be on its way to fruition as shares are down 18% today to stand at $7.40. Options traders are sailing into put contracts in February, March, June, and January '10. In February 2,500 puts were purchased at the 7.5 strike for a VWAP of 80 cents, while 1,000 lots were sold on the call side at the same strike for 55 cents. In March puts were purchased at the 2.5, 5.0 and 7.5 strike prices at costs ranging from 15 cents to 1.35 as the 7.5 strike is now in-the-money. At the June contract about 3,900 lots were purchased for a VWAP of 93 cents at the 5.0 strike price. Finally, in January of 2010 traders extended the duration of bearish plays on RCL as 1,100 puts were purchased for 55 cents at the 2.5 strike and 5,400 bought at the 5.0 strike for a VWAP of 1.48. It will be interesting to see if any cruise lines share prices will remain afloat through such desperate economic times.
CCL – Carnival Corp. – Royal Caribbean is sinking, and they are taking rival Carnival with them. With a portfolio of a dozen well recognized cruise lines, Carnival is widely exposed to vociferously declining demand for cruise vacations by cash-strapped consumers. Over 14,000 options are in play today, representing 14% of total open interest in the Miami-based company. As consumer discretionary spending continues to dwindle, cruises are booking fewer and fewer customers despite deep discounts and promotional offers. Options activity was notable at the April 15 strike where about 1,500 puts were purchased for 1.00 each. Shares today are down nearly 7% to $18.65 which means shares would need to decline an additional $4.65 in order for April put buyers to breakeven. In the July contract 2,100 puts were bought at the 15 strike for 1.79 apiece yielding a breakeven share price of $13.21. But, not all trades initiated today were put purchases. Some investors appear to have sold puts at the 15.0 strike prices in March for 65 cents each and in April for 1.00per contract.
BAC – Bank of America – There seems to be a firmly contrarian bid for call options evident in today's option trading where out-of-the-money calls in Bank of America for both February and March expiration are attracting sizeable volume. Investors bought more than 10,000 lots at each in the first 30 minutes of trading despite the fact that shares in the bank slid 7% to $6.86. Elsewhere February 6.0 and 7.5 strike put options were also sought after with investors paying premiums of 60 cents and 1.34 respectively. Implied options volatility grew once again today as investors digested the passage of a stimulus package raising the reading at BAC to 143%.
OI – Owens-Illinois Inc. – Call buyers appear to have stepped into the fray to catch the falling knife that is OI's share price, down around 10% following an unexpected quarterly loss through the end of December. Shares in the packaging and bottling company traded to as low as $19.34 as sellers dumped the shares. Meanwhile it appears from a glance at time and sales data that it was call buying on the way down that might have stopped the decline. The February 20 strike is populated by 3,371 existing positions and those were today almost matched by volume within the first hour of trading of over 3,100 lots. Premiums were all over the map falling from 2.35 to 1.00. Much of the activity occurred at prices within a nickel of the low point where 1,131 calls traded while its shares were boring a hole into the ground at its lowest point of the day. The March strike attracted call interest at both 17.5 and 22.5 strike. Implied volatility at 63% after earnings compares to historic share price volatility of 69% according to our data.
TROW – T. Rowe Price Group Inc. – Money manager, T. Rowe Price slipped after writing down some of its investment values sending shares down 4% to $32.05. Options open interest at just 29,720 was eclipsed by three slugs of put option volume in the April contract where each of the 22.5, 25 and 30 strikes rang up at 10,000 lots. However, the trade appears to be less bearish than at first blush with only the 30 strike apparently purchased at a 3.90 premium. The two lower strikes appear to be used to fund the transaction bringing in premiums of 2.05 and 1.45 meaning that the upper strike only cost a net 40 cents. Should shares decline to $25.00 by expiration the long puts would be worth 5.0 each and would help absorb further share price declines. However, a freefall for the stock wouldn't be the optimal outcome for this creative trade since outright losses would ultimately kick-in.
MSM – MSC Industrial Direct Co-A – Offering over 500,000 stock-keeping units through direct and electronic mail, MSM is one of the largest direct marketers of industrial products to industrial clients in the U.S. The company rose to the top of our 'hot by options volume' market scanner early this morning after one investor sold 5,000 calls at the February 40 strike for a premium of 10 cents. The trade represents about 4 times the overall open interest on options on the stock, and thus stuck out like a sore thumb. Despite the upgrade MSM received this morning from Jeffries & Co. to 'buy' from 'hold,' it looks like this investor prefers to pocket the 10 cent premium on the calls. The delta for the contract is at 10%, implying a one in ten chance of the calls ending up in-the-money by expiration.
