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Puts Mount on KB Home

Sarah Wasserman (swasserman@sir-inc.com)

3/10/2010 3:44:32 PM

KB Home (KBH) has seen a surplus of option activity today, with put volume skyrocketing to five times the construction concern's norm. Over 8,100 puts have traded today, well above KBH's average put volume of 1,393.

Drilling down on specific trades, it appears one option player is responsible for the bulk of today's put volume. This morning, a block of 7,780 April 16 puts crossed the tape closer to the ask price, suggesting they were bought. With open interest at this strike currently at 6,029, it's clear we'll see freshly added positions tomorrow. At present, the April 16-strike is home to peak put open interest for the back-month series.

Today's preference for puts is in line with recent activity on KBH. In the past two weeks, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have racked up a put/call volume ratio of 2.04, meaning that puts bought to open have more than doubled calls bought to open during that time frame. This ratio ranks in the 83rd percentile of its annual trading range, implying that speculators have rarely shown greater appetite for puts on KBH.

In the past month, short interest on KBH has plummeted 10.5%. Despite this sharp decrease, these bearish bets still account for nearly 17% of the equity's total available float.

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Kinetic Concepts Inc. Calls Popular Following Favorable Patent Ruling

Joseph Hargett (jhargett@sir-inc.com)

3/10/2010 3:27:36 PM

Kinetic Concepts Inc. (KCI) has drawn considerable options activity today, with volume soaring to more than 13 times the equity's daily average. Calls have attracted the most attention, as more than 26,000 contracts have traded, accelerating to some 15 times KCI's average daily call volume. The most popular on the session is the April 55 strike, where 3,700 calls have changed hands on no open interest. Another 3,300 contracts traded on KCI's April 45 call, while some 1,500 calls traded on the April 50 strike.

Prompting the wellspring of call volume, KCI shares have rocketed more than 14% higher today, after the company announced that it won a patent dispute court battle with Smith & Nephew. KCI's volatility had spiked ahead of the ruling, as its Schaeffer's Volatility Index (SVI) of 71% rests at a six-month high. For comparison, the stock's one-month historical volatility arrives at just 18.51%.

With the ruling out of the way, we could see KCI's implieds come back to earth, potentially sending options prices lower. This could be a pain for option buyers, but option sellers banking on declines in volatility may have improved odds as a result.

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Put Players Bombard Juniper Networks, Inc.'s Back-Month Series

Sarah Wasserman (swasserman@sir-inc.com)

3/10/2010 2:17:55 PM

Juniper Networks, Inc. (JNPR) is hitting new highs today on the New York Stock Exchange (NYSE), extending its uptrend. As a result, option activity on the communications concern soared, as speculators rushed to keep pace with the stock's rally.

Option players have paid close attention to the April series today, with the April 28 put leading the pack. Specifically, the April 28 put has seen volume of 3,258, with 95% of these contracts trading at the bid, suggesting they were sold. Open interest at this strike is currently set at 4,494, so we'll have to wait until tomorrow to verify whether these puts are new additions.

The slightly higher April 30 put has seen 3,231 contracts traded on open interest of 514, pointing to the addition of fresh positions. Furthermore, with 97% of these puts trading at the bid, it's likely these puts were sold to open. By selling to open the April 30 put, these bullish speculators are betting that JNPR will coast into April expiration above the 30 strike, rendering the written puts worthless.

Elsewhere on the Street, the scales are tipped toward the bears, with 21 out of 32 analysts rating the equity a "hold" or worse, according to Zacks.

At last check, JNPR had propelled ahead 1.52%, to explore the $30.35 level.

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Option Traders Forecast Post-Earnings Slide for Focus Media Holding (FMCN)

Andrea Kramer (akramer@sir-inc.com)

3/10/2010 12:40:41 PM

Focus Media Holding Limited (FMCN) is expected to confess its fourth-quarter and full-year earnings on Tuesday, March 16, according to Thomson Reuters. Ahead of the event, it seems short-term option speculators are betting on a post-earnings pullback for the digital media diva.

During the past couple of weeks, the stock has racked up a put/call volume ratio of 0.78 on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). This reading registers in the 97th annual percentile, indicating that investors have initiated bearish bets over bullish at a faster pace only 3% of the time during the past 12 months.

Further reflecting the recent affinity for FMCN puts, the stock on Tuesday saw about 3,600 puts change hands � more than tripling its expected daily volume of about 1,000 contracts. The out-of-the-money March 15 put saw almost 3,000 contracts exchanged � 99% of which traded at the ask price, indicating they were bought. Plus, put open interest at the front-month strike jumped by more than 2,000 contracts overnight, confirming our suspicions of newly added bearish positions.

At last check, FMCN has inched 0.7% higher to linger in the $16.10 neighborhood.

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Call Buyers Bet on New Highs for OmniVision Technologies, Inc. (OVTI)

Andrea Kramer (akramer@sir-inc.com)

3/10/2010 12:21:48 PM

Call traders centered on OmniVision Technologies, Inc. (OVTI) on Tuesday, as the shares continued their journey toward annual-high territory. During the course of the session, the semiconductor-device maker saw about 9,600 calls exchanged � more than eight times its expected daily volume of fewer than 1,200 contracts.

The out-of-the-money 17.50 strike was most popular � especially among the intermediate-to-long term options crowd. More specifically, the April 17.50 call saw roughly 7,900 contracts cross the tape, while the June 17.50 strike saw more than 1,000 calls change hands. The majority of the calls traded at the ask price, and call open interest at both strikes powered higher overnight, pointing to buy-to-open activity.

The accelerated bullish betting echoes the recent trend on the International Securities Exchange (ISE), where speculators during the past two weeks have bought to open more than 32 times as many OVTI calls than puts. In fact, the stock's 10-day call/put volume ratio of 32.49 stands only four percentage points from an annual optimistic acme.

In that same vein, the equity's Schaeffer's put/call open interest ratio (SOIR) currently rests at 0.47, implying that calls more than double puts among near-term options. This reading registers in the 36th annual percentile, indicating that short-term option players have been more bullishly biased toward OVTI only 36% of the time during the past year.

In early afternoon trading, OVTI has advanced 3.5% to flirt with the $16.70 level � less than a point shy of its 52-week high of $17.48, tagged in September 2009.

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Commentary by WhatsTrading.com

Valero Energy (VLO) $20.55 +5.23%

3/10/2010 3:19:57 PM

Oil refiner Valero (VLO) is up $1 to $20.53 and options trading is brisk Wednesday, with 33,000 calls and 19,000 puts on the tape so far. The gains in the shares and the heightened options activity comes the day after Reuters reported that PBF Investments might be interested in buying VLO's Paulsboro refinery in New Jersey. Shares are now not far from session highs and the options action is really scattered: March 20 calls, March 20 puts, Sep 23 calls, Sep 25 calls, April 21 calls, Mar 19 calls, Jan11 20 puts, Mar 21 calls, June 18 calls. Meanwhile, implied volatility is up about 2.5 percent to 32.

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CBOE Volatility Index (.VIX) $18.23 +1.73%

3/10/2010 2:19:57 PM

CBOE Volatility Index (.VIX) is up .29 to 18.21 and looking to extend this week's winning streak. After falling during 17 of 18 trading sessions, VIX is up 4.5 percent since Friday and might be seeing some strength due to upcoming expirations -- VIX options a week from today and then the "Quadruple Witch" next Friday. In the options, noteworthy trades in the VIX today include two large blocks totaling 80K May 35 calls on the bid of 45 and 50 cents per contract. These blocks printed in morning action and, since it looks opening, might reflect expecations that VIX is unlikely to make a signficant move higher by the VIX May expiration (69 days.)

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Kinetic Concepts Inc (KCI) $43.99 +1.57%

3/10/2010 1:00:01 PM

Kinetic Concepts (KCI) is halted, news pending ahead of a trial verdict against Smith and Nephew. Shares are up 68 cents to $43.99 and options were active ahead of the halt, with 16K puts and 7500 calls traded. The top trades: 4700 and 4600 March 40 puts on the bid, 75 cents per contract. Looks like put sellers. Another player sold 1750 Mar 50 calls at an average of 37.5 cents. Implied volatility is up about 6 percent to 78.

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Microsoft Corp (MSFT) $29.02 +0.76%

3/10/2010 12:19:57 PM

The top equity options trade so far today is a block of 38K January 35 calls on Microsoft (MSFT). It was bought at 52 cents per contract and not tied to stock, according to a source on the floor. It might close an existing position, as open interest is 77.7K.

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Norfolk Southern (NSC) $53.74 +0.0%

3/10/2010 10:19:58 AM

Norfolk Southern (NSC) is often considered the best managed rail company, but the stock is not at 52 week highs like it's counterparts Union Pacific (UNP) and Kansas City Southern (KSU). That could change with a break of $55, which would target a move to $60. Option traders were decisively bullish Tuesday, with 4,425 calls trading, 3X average, and 90% offer side buys. The April and June $55 calls both saw buyers, with 2,800 in April $55's changed hands. Shares trade 13.2X earnings and 18X cash value, and recently were raised to Overweight at Barclays with a $62 target. Recent improvements in pricing, shipping volumes, and improved outlook for coal were cited as reasons for the upgrade.

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Daily Rundown, March 10

3/10/2010 8:59:58 AM

Early indications point to a steady open on a slow news day and very quiet trading across international financial markets Wednesday. About an hour before the opening bell on Wall Street, stock index futures hint at modest early gains for both the Dow Jones Industrial Average and the NASDAQ.\n
\nStock benchmarks saw narrow trading overseas. Japans Nikkei finished down .04 percent and Hong Kongs Hang Seng was unchanged. In Europe, Frances CAC 40 Index is up .3 percent, Germanys DAX up .2 percent, and UKs FTSE is flat.\n
\nIn the US, the focus turns to the only economic stat of the day at 10:00 a.m. eastern time. A report on wholesale inventories is expected to show an uptick of .2 percent for January.\n
\nWith no other news to guide the action, bonds are drifting in aimless trade. The benchmark ten-year Treasury is down 2/32nd and now yields 3.71 percent.\n
\nThe dollar added .49 to 90.43 against the yen. The euro gained .0004 to 1.3602 against the buck. \n
\nCrude oil added .25 cents to $81.74 a barrel and gold rose $2.1 to $1124.40 an ounce.\n
\nAmong the stocks to watch, Intermune (ITMN) launched 64.5 percent higher after an FDA panel voted to approve the companys pirfenidone. Factset (FACT) jumped 66 percent after Abbott (ABT) made a $27 cash bid for the company. American Eagle (AEO) rose 5 percent on better-than-expected earnings. Navistar (NAV) lost 7 percent after reporting a quarterly profit of 23 cents per share, which fell well short of analyst estimates of 85 cents. Retailers will be in focus after the closing bell with a number of second tier names -- Hot Topic (HOTT), Mens Wearhouse (MW), Jo-Ann Stores (JAS) -- slated to release results. \n

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Unusual Activity Roundup, Mar 9

3/9/2010 4:00:01 PM

Some less actively traded names seeing bullish order flow: Exact Sciences (EXAS), Beazer Homes (BZH), BJs Wholesale (BJ) Bearish order flow: Maiden Holding (MHLD), PDL Biopharma (PDLI), Potlatch Holding (PCH) Post Earnings: Kroger (KR), Force Protection (FRPT) Pre-Earnings: Navistar (NAV) , J Crew (JCG) Ex-div.: Allstate (ALL), Wal-mart (WMT), Smith International (SII), ADP

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Citigroup Inc (C) $3.81 +7.02%

3/9/2010 1:20:01 PM

Citi (C) calls are seeing heavy trading as shares gain 22 cents to $3.78, session highs and their best levels of 2010. 165.6K April 4 calls traded (37% Mid / 52% Ask), 138.5K Mar 4 calls (78% Ask), and 54.8K Jun 4 calls traded (27% Mid / 55% Ask). An impressive 581K Citi calls traded so far and trading is still brisk. Implied volatility is down about 2.5 percent to 49. The bullish flow comes amid mixed action in the financials Monday, but seems to reflect some optimism that the worst might be over for Citi shareholders.

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AirTran Holdings Inc (AAI) $5.22 +5.24%

3/9/2010 12:20:00 PM

Airtran (AAI) is up 29 cents to $5.25 amid relative strength in the airline sector Tuesday. Reuters reports that demand for air travel among business customers is picking up. According to UAL CFO Kathryn Mikells, "We're clearing seeing signs of economic recovery and premium and corporate travelers returning." The Arca Airline Index (.XAL) is up 2.4 percent with help from the 5.8 percent gain in AAI. Meanwhile, AAI call options are seeing action, with 2130 traded, or about 7X the normal for the first two hours of trading. Mar, April, and Oct $5 calls are seeing the bulk of the flow.

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Cisco Systems Inc (CSCO) $26.20 +0.27%

3/9/2010 11:00:03 AM

Cisco Systems (CSCO) calls are seeing active trading ahead of the company's 8:00 a.m. PT web cast. The networking company is expected to make a major product announcement, which might be new technology for wireless carriers. Shares are up 3 cents to $26.16 and 64K calls traded (28K puts). The total volume represents 7X the typical activity for the first hour of trading. March 26, March 27, and April 27 calls are the most actives. Implied volatility is up about 3.5 percent to 26, as players jockey for position ahead of the news.

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More Options Commentaries and Observations by Schaeffer�s

Market Recap: Stocks Post Modest Gains as Financials, Tech Sector Pave the Path Higher

Stocks hovered just north of breakeven for most of the session, with financial issues pacing the advancing equities. Citigroup (C) and American International Group (AIG) led the charge higher for the second day in a row, while regional banking concerns like Zions Bancorp (ZION) rallied on rumors that Barclays PLC (BCS) may be hunting for U.S. assets. Elsewhere, Google Inc. (GOOG) paved the path into the black for the tech sector, after the search-engine sultan launched Google Apps Marketplace, a new online store for integrated applications. By the close, the major market indexes finished a relatively mellow session in the black, with the Dow Jones Industrial Average (DJIA) eking out a 3-point gain.

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Bearish Speculation Surges on LDK Solar Co., Ltd.

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Out-of-the-Money Call Volume Pops on Potash Corp. of Saskatchewan (POT)

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Can Human Genome Sciences Continue Its Impressive Climb?

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