Intra-Day Significant Options Activity
Stocks Mentioned: AEO, DG, DVN, EDS, FL, GYMB, KSS, MLNM, MMC, NBR, NFLX, NYB, PII, SAI, WSSI
In Millennium Pharmaceutical (MLNM, 11.60, +0.17%) there have been May 12.5 call buyers in the market all day today implying that the stock will make a notable move to the upside between now and May expiration (5/19/07). Investors paid $0.25 and $0.30 for 4,000 calls which has prompted a ~15% increase in May implied volatility levels. The participants may be playing the next earnings release, estimated for 4/27/07. MLNM calls have recently been averaging under 300 contracts a session.
In Electronic Data Systems (EDS, 27.72, +0.04%) opening investors bought 2,500 May 30 (.12d) calls paying $0.15. Separately we also saw sellers of 500 January09 30 (.55d) calls. The investors are likely speculating on a notable upside move in the coming weeks. Q1 earnings are estimated for 5/2/07.
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Financial - Lender
In New York Community Bancorp (NYB, 17.77, -0.11%) there is repeat July put buying today. On Thursday, investors bought 4,000 July 17.5 (.42d) puts for $0.60 and this morning 1,000 traded at the same price. The investors are buying exposure to increased volatility and they may also have a bearish bias in the stock. Earnings are 4/25/07, which falls into the May option cycle.
In Marsh and Mclennan Companies Inc (MMC, 29.26, -0.26%) we are seeing buyers of upside calls across multiple timeframes. Opening investors have bought 7,500 July 35 (.10d) calls paying up to $0.20 and there are also buyers of the 30 strike calls in July, May and April. The trading appears be bullish speculation that the stock will make a near term move.
Internet - Movie Rental
In Netflix Inc. (NFLX, 24.42, +0.91%) opening investors sold roughly 3,500 May 25 (.52d) puts at $1.95. This trading suggests investors expect limited downside and / or decreased levels of volatility. Additionally, the put selling implies that the investors are comfortable getting long the stock at $23.05 ($25 strike - $1.95 premium), if assigned on their position. NFLX options typically trade approximately 1,400 puts a session.
With unconfirmed takeover chatter circulating in Devon Energy Corp (DVN, 73.55, +2.34%) we are seeing buyers of near term calls and sellers of volatility in the January 08 and 09 time frames. More specifically, by early today over 20,000 calls had traded predominantly across the 75 and 80 strikes in April, May and July. Separately, we also observed smaller sized sellers of the 80 strike calls in both Janaury08 and the Janaury09.
In Nabors Industries (NBR, 30.43, +0.03%) opening investors bought 2,500 June 32.5 calls for $0.95 and we also saw a seller of 700 Janaury09 40 calls at $2.00. These investors appear to have a bullish bias while also collecting longer-dated volatility premium. In the past several months, we have seen similar trading (near-term call buying and Jan08 / Jan09 option selling) alongside unconfirmed takeover chatter.
In Polaris Industries (PII, 48.44, +0.14%) opening investors bought 3,000 April 50 (.34d) calls paying from $0.60 up to $0.75. These investors are positioning for a near-term upside move likely in reaction to this Thursday's earnings release (4/12/07). PII trades on average fewer than 400 calls a session.
Ahead of same-store-sales in American Eagle Outfitters Inc (AEO, 29.54, -1.20%) we seeing buyers of front month volatility. Today, there are buyers of ~3,000 April 30 (.45d) calls and 1,500 April 30 (.55d) puts. The trading shows clears expectations for a notable move in the stock, and given the heavier volume in the calls they may have a bullish bias.
With same-store-sales coming up in Gymboree Corp (GYMB, 41.58, -0.65%) we are seeing buyers of downside April puts. Today, opening investors bought ~800 April 40 (.25d) puts paying up to $0.65. The put buyers could be holders of long stock looking for downside protection.
In Kohls Corp (KSS, 78.52, +0.18%) we are seeing protective trading in the options ahead of their sales release next week. Specifically, investors bought 2,500 April 75 (.17d) puts paying $0.40. Several weeks ago, we also saw buyers of the April 70/65 put spreads (buys the 70 put and sells the 65 put) and we believe investors are still long them. KSS will report same store sales for the month of March on Thursday April 12th BMO.
Retail – Discount Stores
In Dollar General (DG, 21.18, +0.7%) investors sold 10,000 May 20 puts to buy 10,000 August 20 puts for $0.275 this morning, opening in both strikes. It was just three weeks ago that an investor bought ~20,000 August 20 / 17.5 put spreads, so today’s activity adds to that existing long put position in the August 20 strike. While the option volume is significant, the recent August trading is also noteworthy given DG is in a deal to be acquired by KKR for $22.00/share in cash, expected to close in 3Q07. There is likely increased concern that the stock will trade below $20.00 before August expiration (note that today’s calendar spread suggests the stock will not make a move until after May expiration, 5/19/07). DG was trading $16.78 before the takeover was announced on 3/12/07.
Retail - Footwear/Apparel
With unconfirmed takeover rumors circulating in Foot locker Inc. (FL, 24.14, +2.42%) this morning opening investors focused on buying 25 strike calls in both the April and May maturities.
Software - Consulting
We have observed bullish activity in WebSideStory Inc. (WSSI, 11.40, -3.80%) this morning as investors bought 500 June 15 (.10d) calls, 500 September 12.5 (.47d) calls and sold 1,000 September 10 (.27d) puts. This is a notable increase in volume as WSSI trades on average fewer than 40 contracts a session. WSSI is estimated to release Q1 earnings on 5/10/07.
Technology - Business Services
Options in Saic Inc. (SAI, 16.83, -0.41%) saw increased volume as investors bought approximately 4,500 August 20 calls versus stock, delta neutral. Indicating no directional opinion in the stock, these investors expect increased levels of volatility heading into August expiration. SAI trades on average less than 400 calls a session.
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