Today's tickers: BAC, AA, ATVI, GE, ISIL & HBC
BAC – Bank of America. – The ongoing decline in the price of shares at BoA is prompting option speculators to take the opposite side of the trade as they appear to be happy writing premium through put sales. Shares have rebounded since we noted put sales dominating this morning's activity and are off just 3% now at $11.08 having touched $10.70 earlier. Today's price action values the company at its lowest point since the November 21 low. However, options implied volatility at 105% is little changed on the day indicating no acceleration of fear. In the February contract we noted sales at both the 7.5 and 10 strikes. Puts at the latter strike where sold for premium of 1.09 indicating a naked seller would get dragged under water at share prices below $9.91 by expiration. Elsewhere there was some demand for calls at the 15 strike where investors paid 29 cents for buying rights.
AA – Alcoa Inc. – Fourth quarter earnings from aluminum producer Alcoa were anything but shining. Reporting a fourth quarter loss of $1.19billion in the past year, times certainly look bleak for the Pittsburgh based behemoth. Citing a laundry list of factors leading to their poor performance, it would seem that Alcoa is far from seeing the light at the end of the tunnel, with decreasing prices of metals and plunging demand for industrial materials, excess capacity seems inevitable. As demand from their major end-users such as automotive giants GM and Ford continue to decline, and Alcoa's margins increasingly diminish, investors fear that this situation may continue to snowball. While investors knocked a further 5.3% off Alcoa's market capitalization following last night's earnings to $9.52, option traders seemed to increase their appetite for put options reserving selling rights at the 7.50 series where they paid a 41 cent premium for more than 7,000 contracts. Open positions there currently amount to 12,776 contracts. Implied volatility subsided by some 15% to stand at 89%.
ATVI – Activision Blizzard Inc. – News that the maker of Guitar Hero has scooped an exclusive deal with legendary rock 'n roller, Bruce Springsteen hasn't helped shares at Activision today, which are 0.5% weaker at $9.06. Springsteen will make his video-game debut when his new album is released to be coincided with a TrackPack that allows game-buyers to download a fresh song along with his famous hit single, Born to Run. Gamers using Wii, Playstation and the Xbox will access the download for a limited time. In the options world, we note a build of open interest over the course of the last week, which bets that ATVI will rally from its current level and clear the $10.00 barrier ahead of expiration in May. Investors have been writing put options at the 7.5 and 10 strikes taking in respective premiums of 60 cents and 1.65 today on volume high relative to 10-day average numbers. For a stock whose options open interest is 129,907 lots, the build of more than 13,000 puts at the 10 strike during the last five days is significant. Some investors seem to think that Springsteen might be the hero the gamester needs. Option implied volatility is slightly higher at 67% as ATVI drops in price today.
GE – General Electric. – A stark warning from an analyst at Barclays drove conglomerate GE's shares into the ground today dropping 5.6% to $14.93 in activity that was largely bolstered by option trading patterns. Option implied volatility jumped 10% as demand for protective put options outpaced demand for calls. The analyst predicted that fourth quarter earnings would only meet the lower threshold of CEO Immelt's revised guidance and only with the stretch of tax benefits adding significantly to earnings. Investors bought put options expiring in January at the 14 strike paying 18 cents to help protect against further share price losses, scooping up more than 6,200 lots. At the 15 strike they paid 43 cents for more than 11,000 lots. In the February contract investors focused on the 12 through 16 strikes. Further out, investors sold call options expiring in June with a 19 strike price on good volume of 5,245 contracts at a 98 cent premium. Open interest of just under 5,000 lots indicates fresh bearish positioning here.
ISIL – Intersil Corp. – The press release from semiconductor-manufacturer, Intersil addressing the launch of its D2Audio SoundSuite put some pzazz behind its shares with a rally to $9.41 today. The audio experience in consumer goods is supposedly vastly enhanced with the SoundSuite. In the recent two months, shares have traded laconically between $11.74 and $7.18. It appears that a long straddle may have been placed today in which a buyer of calls and puts at the 10 strike expiring in February hopes that shares will break beyond those parameters. The overall 1.90 premium paid by the buyer indicates a movement in the share price to above $11.90 or beneath $8.10 before expiration. What would likely help the position is a rally in implied volatility, which today is 8% at 77%.
HBC – HSBC ADRs – Some reports on yesterday's action in HSBC options might leave readers with the mistaken belief that HSBC was in the firing line and set to become the next Lehman's or Bear Stearns. We have a different take on the large amount of put trading in Monday's session, which saw an investor make a bearish play but one that would leave him or her smiling if its shares rose. The put combination saw a large amount of in-the-money puts sold and a large chunk of shares bought. If shares rally through the highest strike price involved the investor is left purely long of stock and riding the wave. For sure, the driver behind the trade was aimed at the downside, but don't believe for a second that this is a bankruptcy play. In today's session, an investor has just bought 14,000 puts expiring in March at the 25 strike. Shares are 1% lower at $46.02 today and this ambitious play requires at least a 45% dump in shares this quarter to come good.