VIX – CBOE Vix Index – Investors continue to assign lower relevance to the reading of implied volatility via the equity option market. Last week’s run on the stock market only provoked a rise to a reading of 33.0 for the Vix, commonly taken as Wall Street’s fear gauge. We still take the view that much of the world’s problems have at the very least been quantified and given the scope of measures employed in dealing with them, the likelihood of a sustained rise in volatility would appear to be low. Investors appear to be acting along those lines at least. Today we noted the sale of around 10,000 August-cycle call options with a 30 strike price at premiums ranging from 2.90 to 3.20. If the Vix index remains below the strike through expiration, such calls are worthless. Today the Vix index has once again fallen and hovers just above the end of June lows at 25.55.
HUM – Humana Inc. – Bearish put buying was observed on Humana today after the full-service benefits solutions firm failed to win the bidding process for contracts with the U.S. Defense Department worth approximately $55.5 billion. Shares have slipped more than 5% to the current stock price of $28.94. Investors fearful of further downside movement in the stock looked to the near-term July 27 strike price where 4,500 put options were purchased early on in the trading day for a premium of 20 cents apiece. The puts will yield downside protection for investors long the underlying stock (or profits for investors short the stock) beneath the breakeven share price of $26.80 through expiration.
IPI – Intrepid Potash, Inc. – Near-term bullish investors eyeing call options on IPI today were seen positioning for upward movement in the price of the stock despite the downgrade to ‘underperform’ the potash producer received from analysts at Oppenheimer & Co. yesterday. Shares of Intrepid are currently off by 1% to $22.74. Traders hoping for a rally picked up 1,400 in-the-money calls for a premium of 1.14 each at the July 22.5 strike price. Shares would need to rally about 4% for investors to begin to amass profits at the breakeven point of $23.64 by expiration. Other optimistic individuals looked to the higher July 24 strike to purchase 1,700 calls for 63 cents apiece. Finally, 1,600 call options were coveted as high as the July 25 strike for an average premium of 28 cents per contract. Investors long of the July 25 strike calls will begin to accrue profits if shares can rally 11% from the current price to breach the breakeven point at $24.28.
MIR – Mirant Corp. – At least one option trader appears determine to maintain a bullish stance on independent energy producer, Mirant, whose shares stand up 2.6% at $15.26. It looks as though an earlier plan hatched June 9 to get long of calls at the July 15 strike has been scotched by a subsequent decline in the share price. When the investor originally bought 10,000 calls securing buying rights over a million Mirant shares at $15 apiece, the stock was trading at $16.54. Heading into expiration the slump in prices of crude and heating oil along with the price of natural gas has depressed shares at Mirant. Having paid a 2.05 premium at the time, the investor hoped to walk away as a shareholder by expiration at the end of this week. That’s looking like a decidedly risky bet just now, which helps explain the roll of those July 15 calls and into September 12.50 calls this morning. The investor paid a net 2.70 premium in an effort to stay long of Mirant after Labor Day. The recent decline at Mirant has been fostered by the view that the economic recovery is likely to falter, which has ushered in a greater deal of sensitivity to an over-supply of crude oil. This investor hopes to see through this argument.
UNH – UnitedHealth Group, Inc. – Bullish news regarding the health and well-being company had boosted shares earlier in the trading day, although the stock is currently off by 1% to $24.72. UnitedHealth Group received new coverage by an analyst at Wells Fargo who rated the firm at ‘market perform’ today. Additionally, UNH (along with Aetna Inc. and TriWest Healthcare Alliance Corp.) won contracts valued at about $55.5 billion to provide managed care for the U.S. Defense Department over the next six years. Despite the bullish news surrounding the Minnetonka, Minnesota-based company, option traders were seen purchasing put options. The near-term July 24 strike price had about 10,200 put options purchased for an average premium of 27 cents apiece. Perhaps the investors responsible for the trades are long the stock and cautiously optimistic in the near-term, thus are buying put options in order to lock into recent gains experienced by UNH. Otherwise, the put options could be held by bearish traders who expect to profit beneath the breakeven point at $23.73 by expiration.
