GE – General Electric - Implied volatility on GE has increased today from 110% to 124% as shares dropped like a stone to $7.61. In the middle of Friday trading the company reneged on its promise to maintain its dividend, citing the benefits of capital preservation. The market spent the rest of the afternoon digesting the news and investors even tried to push the stock higher feeling that this might even be read as a position of strength. After a weekend full of bleak economic and corporate news, investors are in no mood for buying the silver lining argument today. There was good two-way options activity in the puts reserving rights to sell shares at a fixed $7.50 before March expiration, where investors traded 13,000 contracts at an average premium of 70 cents. Buyers would start to feel protection at a breakeven price of $6.80. One investor sounded a more optimistic recovery note by selling the March/April calendar spread at the 10.0 strike. By selling 10,000 calls in March and buying the same amount in the April contract the investor is staking a claim in a rally in the stock over the next 46 days. The purpose of selling the March calls is to erode the total spread premium to 74 cents.
HBC – HSBC ADR – It doesn't matter how well respected any individual name is, a call for cash from investors is taken as a sign of weakness. The deeply discounted price at which existing shareholders are being asked to write checks in exchange for more stock, is fast turning out to be a short sellers target. Shares have fallen 20% today to $27.73, with rights to buy offered at a 48% discount to Friday's closing price. Investors have targeted the April 25.0 strike puts today where some 26,000 puts have been traded at a 3.50 premium across a variety of exchanges and tied to stock at a share price of $28.30. The news of 6,100 job losses mainly at its U.S.-based consumer lending divisions has sent implied volatility surging by 20% to stand at 92%. Some of today's option activity on the puts maybe due to perceived arbitrage opportunities, which might arise as a result of the corporate action, with option traders scurrying to lock-in premium and shares based upon the rights issue.
IYT – iShares DJ US Transport Index – Investors are in no mood to wait and see if Dow Theory is currently at play or not. You need to simply stick your head out of any window to see the dire economic picture without needing industrials and transports to confirm just how bad things are. Option volume on the transport ETF generated some interest today and given that only 25,000 contracts currently express existing open interest we sat up and paid attention. With shares 5.7% lower at $42.26 it appears that an investor may have taken profit on a put spread or on two established bear plays. We can see that March puts at the 45.0 line, which were sold today at a 3.30 premium were originally bought for a 1.0 premium. Some 4,000 puts at the 50 strike traded today at 7.10 were initiated some weeks ago at a premium of 3.0. So the investor either legged into a put spread for 2.0 points, selling it today at 3.80 or simply sold out of both bear positions. In the June contract an investor then established a fresh bear position as the share price reached an all-time low. This time he used the 35 and 40 strikes, which traded to the mid-market prices of 1.90 and 3.60 respectively. While this looks like a put spread, this investor could equally be making both outright purchases here, looking for continued downside for transport stocks.
EXPD – Expeditors International Washington Inc. – As one of the components of the transport index, shares of EXPD also saw interesting options volume, which we're unclear of the investor's motivation. Shares in the logistics company are lower by 6.5% at $25.75, while the options action took place in the May contract using 20.0 strike puts and 35 strike calls. The trade is marked as a strangle on time and sales, but the volume is unequal at both strike prices, which causes our confusion. The trade involved 4,000 puts and twice as many call options and if this is a strangle combination, the investor may have sold for a total premium of 1.31 inferring that he wants the share price to remain between a range of $18.69 and $36.31 at expiration. The implied volatility on the company's options today reads 61%.