Friday Options Outlook: CRM, MNST, IR, LPX, MRVL, JCG, CIT, BUD, DELL, MSFT

Salesforce (CRM) – Have takeover rumors come home to roost at Salesforce.com? The company, whose so-called “Platform as a Service” concept allows businesses to develop online applications without costly infrastructure investments, received positive attention in a Minyanville column yesterday touting it as a possible takeover stock, expressing wonderment that someone of Larry Ellison’s caliber hadn’t yet spoken for the company. The first inklings of bullish rumors coursing through the options came this morning, with a 12.8% spike in implied volatility to 47%, making Salesforce.com  one of the day’s top implied volatility gainers as its shares set a new 52-week high at $72.47. The take higher in volatility was accompanied by heavy buying interest in the conspicuously out-of-the-money June 80 calls, which traded for about $1.00 apiece on volume of 4,940 lots, where open interest numbered no more than 574 lots previously. Until today, the 122,500-strong open interest in Salesforce.com showed a fairly even split between puts and calls, making today’s 7-to-1 privilege of calls an eye-catching development indeed.

Monster Worldwide (MNST) – A similar dynamic appeared to move lots this morning in another evergreen rumor-stock, recruitment and job-search site Monster Worldwide. An early doubling in option volume against the normal daily average occurred as shares trading 2.5% higher at $24.98, and we saw a rash of buying in June 25 and 30 calls. Monster shares dipped decisively below $30 around the first of the year and have loitered consistently around the mid-20’s ever since, two spikes higher in February notwithstanding (both, incidentally, on takeover rumors).

Ingersoll-Rand (IR) – Are option traders taking advantage of crimping volatility in diversified industrial firm Ingersoll-Rand to position cheaply for share price turbulence heading into the fall? Earlier today our market scanners detected a 15-fold increase in option activity, particularly unusual as it occurred against a backdrop of minimal share price action (shares are up .89% to $44.20) and an implied volatility reading of 28% ticking in well below the 32% historic measure in the stock. Our attentions were piqued by the fact that this volume appeared concentrated in the September contract, with puts at the 42.50 strike trading to the middle of the market for $2.43, and calls at the 45 strike trading to the middle for $2.82. Traded together, these positions form a strangle combination that if bought for the combined premium of $5.25 would generate profit for the buyer with a break to the upside past $50.25 or down below $39.75 to the downside. A seller of this combination would accept the premium in a wager that shares would remain rangebound between those strike prices.

A look at Ingersoll-Rand’s price history over the past 6 months shows a stock that has traded as high as $52.02 and as low as $36.77 – and most of that movement was concentrated in the December-January period when the market was digesting its proposed takeover of Trane (TT). The relatively tame current implied volatility reading shows  the option market en masse seeing little need to raise the price of insurance against fluctuations in the stock. 

Marvell (MRVL) –Smartphones’ continued luster in the eyes of consumers has been marvelous business for Marvell, whose chips are featured in the Blackberry and iPhone models. Shares in the semiconductor ticker rose 22% to $17.17 (still $3 shy of the 52-week high) after its Q1 profits and Q2 forecast came in well in excess of street estimates. Promptly we saw its option volume surge to 3.5 times the normal level as traders bought 3 times as many calls as puts, buying at the June 15 and 17.50 strikes with abandon, as long interest in the upper strike continued into the July contract. As for the odds of a break of that 52-week high by July? Delta on the July 20 call suggests only about a 17% chance of Marvell’s ride going quite that far.

J. Crew (JCG) – One is pained to imagine the idea of recession being fathomed at  J.Crew, the merchant of preppy, poppy confections in fine materials, whose catalogues gleefully evoke the Bouvier sisters’ 1950’s romps through Paris. But today’s 21% drop in its share price to $37.11 can hardly be explained any other way, as the company itself was forced to guide lower full-year profits on softer sales. The market took the news especially hard, given encouraging signs out of fellow high-street retailer Tiffany’s – but the upmarket jewelry brand has been able to effectively leverage its growing international clientele, and J. Crew is not just archly American, but victim, it would seem of consumers downgrading their clothing purchases from the mass-market cashmeres and wool blends that are J. Crew’s wont, and toward sturdier, more proletarian gear. Options are trading at triple the normal level today, adding up to nearly 1 out of 4 existing J. Crew contracts in play. Twice as many of these are trading to puts, adding little color to the mood of pessimism. Fresh volume appears to be trading at the July 40 line, with puts being sold at $3.40 and calls trading to the middle of the market at $1.05. The volume here is largely piecemeal, but could suggest some traders opting to sell the heavily pumped premium and taking a $4.45 credit in the expectation that J Crew shares will settle back at the $40 line by July 18.

CIT Group (CIT) -   This morning’s Moody’s  downgrade of commercial lender CIT Group’s senior unsecured debt sent shares 4.5% lower to $10.43, possibly inducing a trader to protect a short position in the underlying stock with a 12,900-lot short collar in the January contract. The trader in this instance would have written puts at the $10 strike for $2.35, creating more than enough credit to absorb the 55-cent cost of the 20-strike call, protecting the short position against an unanticipated recovery past current levels and allowing the trader to take a $1.80 credit besides. The volume here was sufficient to send overall CIT Group volume to 6 times the normal level.

Louisiana Pacific (LPX) – Shares in building materials and paper products maker Louisiana Pacific are down 4% today to $12.20 on no apparent news catalyst - the 10% decline in its share price value so far this year compounds a 40% decline over the past 52 weeks that makes doleful sense given the company’s sector exposure. An increase in option trading volume to 10 times the normal level was overwhelmingly centered in out-of-the-money puts in the January contract at the 7.50 strike, which were bought today for about 65 cents apiece, suggesting a new round of downside for the company.

Anheuser-Busch (BUD) –  With the market still in a holding pattern as it awaits details of a bid from InBev, talk about the fate of Anheuser-Busch has turned rhetorical, with market analysts debating what’s good for Bud, and good for beer, with all the bluster of a Miller-time debate. It’s this uncertainty that has kept implied volatility at 36.6% so stubbornly elevated above the 28.8% historic volatility reading on the share price. Meanwhile, some outsize volumes in front-month calls appear to be the work of call-spreaders possibly wagering on rangebound activity for the share price, with traders buying the 60 strike calls for about $1.25 and selling the 65 calls for about 25 cents apiece in a net debit transaction that still predicts a break past the 52-week high within the current contract period. Overall, option traders have put some 134,000 contracts in play this morning, matching up to 17% of its open interest and making Anheuser-Busch the most active ticker on our platform.   

Dell (DELL) – Better-than-expected profit and sales figures at laptop maker Dell took even the options market by surprise, as the upside exceeded the 7% move priced in to the front month as of yesterday afternoon. Shares are up 7.8% at present dispatch at $23.53, with some 103,000 options in play trading more than twice as often to the calls as the puts. Heaviest buying interest was observed in June 23 calls, which traded for about $1 apiece this morning. Volume at higher strikes in the June contract was similarly giddy but attracted two-way traffic, suggesting some divergence of views as to the sustenance of its current upside move.

Microsoft (MSFT) – Whether due to benign carryover from Dell’s earnings last night and its imprint on the tech space, or simply a feeling of goodwill on the part of investors that Microsoft’s management is focused and fit for fight after its fiasco with Yahoo, is hard to tell – fact is, the shares are up .85% to $28.56, and with more than 57,000 active contracts making it one of the more heavily trafficked names on our platform today, traders appear confident enough to sell July puts at the 27.50 and 30 strikes on substantial volumes. These may represent the taking off of positions entered when the outlook for more aggressive action on the Yahoo buyout front looked more promising in the July contract.

Rebecca Engmann Darst contributed to this report.

Comments

[truthinvesting]

no doubt bud is in play