Taser (TASR) - UPDATE - Call Accumulator

The first TASR blog can be read here: FIRST TASR BLOG 12/28




A quick update. TASR was 4.32 on 12/28 - it has hit 5.80 today in the first half an hour of trading. That's 35% in 10 days with order flow to indicate. The bet was Feb 5 and Feb 7.5 calls - read the prior blog for details if interested: CLICK HERE FOR FIRST TASR BLOG 12/28.


Other stuff to watch today from pre-market:
FDO on earnings beat.
TPX continues upswing - straddle seller looks like a loser (for now)

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Ciena (CIEN) - Takeover Spec with Calls

CIEN is up 5% today on takeover speculation. The LIVEVOL™ Pro Summary is included below.



The Company Tab snapshot below (click to enlarge) shows that the company has traded over 61,000 (not a typo) options today in 4 hours versus 9,000 daily average.



The day's biggest trades snapshot and the Options Tab snapshot (click either one to enlarge) below illustrate the positions being taken.





Basically people are getting long OTM calls in Jan and Feb for size. 15,000+ Jan 12.5 calls have traded on 9300 OI (open interest) and 13,000 Feb 12 calls have traded on just 1408 OI. You can also see the Feb 11 and Feb 13 calls traded heavily versus smaller OI.

All this seems to be over some takeover speculation. I am usually a seller of upside calls on takeover speculation as people tend to pay up for what can turn out to be worthless options. Having said that, I don't usually see 600% of average daily volume trade on a little unfounded "spec." This is a tough one to call - no pun intended.

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Dynegy (DYN) - Call Buyer/ Put Spreader

DYN is a $1.5B provider of energy products and services in North America. The LIVEVOL™ Pro Summary is below.



The company averages 1,466 option contracts traded a day - in the first three hours over 10,200 have traded. The Company Tab snapshot below (click to enlarge) demonstrates that exactly 8000 puts have traded and the rest are calls.



The day's largest trades snapshot below (click to enlarge) illustrates that the 8000 puts traded in a 4000 Jan/Feb 2.5 Put Spreads (buying Feb and selling Jan for 0.10 debit). The other biggest trade is a purchase of the Feb 2.5 calls.



The Options Tab snapshot below (click to enlarge) demonstrates that the Feb options are opening (small open interest relative to trade size).



So what's the trade? The put spread could be a roll - Selling Jan puts he already owned and then buying the Feb puts to roll protection into the next month. If that's the case this trade is really just a 1:2 ratio straddle. i.e. Buy 1 call and 2 puts on the Feb 2.5 line. That's a bet the stock goes down, but with a smaller bet that it could rip through $2.50 on the upside. Either way, that trade loses most if the stock goes to $2.50 and sits.

If the put spread is not a roll - i.e. no previous option position existed and this is all opening, then the Jan options will be exercised (probably) and this guy will be long stock. He buys 4000 puts in Feb to hedge the long 400,000 stock and buys 2000 calls for an upside bet. That would be bullish.

Finally, this could be any combo of the above but selling stock with the calls (to make them puts) or buying stock with puts (to make them calls - this is unlikely since a spread traded).

All of these trades bet on a move in the stock.

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Tempur Pedic (TPX) - Straddle Seller

TPX is up 5% today to 25.62. The LIVEVOL™ Pro Summary is included below.



The company averages ~1000 option contracts traded a day. In the first hour over 8600 have traded. The Company Tab snapshot below (click to enlarge) illustrates that the call:put ratio is 1:1. Further, the Net Premium is -$390,000 - people are selling vol.



The day's biggest trades snapshot below (click to enlarge) and the Options Tab snapshot below (click to enlarge) demonstrate that the Feb 25 straddle is getting sold @ 3.90 (1.85 in the puts, 2.05 in the calls). Note also that the OI (open interest) is well below the trade size - these are opening orders (at least in part).





A look at the Charts Tab snapshot below (click to enlarge) illustrates the IV30™ (red line) vs the HV30™ (blue line) divergence on the bottom portion. You can also see that the stock has been on an upward trend. Finally, you can see how unusual this amount of option volume is.



At Feb expiration the straddle sale wins if the stock is above 25 - 3.90 = 21.10 or below 25 + 3.90 = 28.90. A straddle seller bets that the stock goes directly to the short strike at expo - in this case 25. If not held to expiration, the straddle seller bets on decreasing volatility - in this case, a bet that the implied vol (red line) comes back down to meet the historical vol (blue line).

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LSI Corp (LSI) - Multi Day Call Accumulator

LSI is a $3 billion technology company. The LIVEVOL™ Pro Summary is included below.



LSI averages 613 option contracts traded a day - in the first 2 hours of trading today over 3,300 have traded. Further, all but 10 contracts were calls for a 330:1 call:put ratio. The Company Tab snapshot is included below (click to enlarge).



The day's biggest trades snapshot below (click to enlarge) and the Options Tab snapshot below (click to enlarge) clearly illustrate that the action is in the Apr 7.5 Calls. Further, the green coloring on the biggest trades indicates these are trading on the offer (cust purchases).





From the Options Tab we can see the OI (open interest) in the Apr 7.5 calls is 2006. By digging deeper into the Level II pop up below (click image to enlarge), we can see the steady increase in opening postions in these calls. 12/31/09 shows a spike.



To see if these were purchases or sales I have included the Time & Sales snapshot below for that day (click it to enlarge).



These trades are all green - trading on the offer. It looks like there is a steady accumulation of OTM calls in LSI. On 12/31/09 they traded 0.15; today the bet doubles down paying 0.20.

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Novartis (NVS) - Alcon (ACL) - NVS Exercises a Call

NVS is trading down ~1.06 and ACL is down ~$4.34 right at the open. The LIVEVOL™ Pro Summaries are included below.





You can see a snapshot of the News Tab below (click the image to enlarge it):



NVS purchased 25% of ACL in April 2008 as well as call options from Nestle representing an additional 52% of ACL. The call option has a strike price of 180 (i.e. NVS is purchasing 52% of ACL for 180 per share).

So why is ACL trading $160? NVS is bidding $11.2 billion for the remaining 23% of ACL - that's $153 a share. So existing shareholders are facing a deep discount in stock from a buyout offer originating from an entity which is now 77% owner.

A quote from the CEO of NVS, Daniel Vasella, to analysts states that the discount for the remaining 23% reflects a premium that NVS is paying Nestle for control of the company. Marketwatch has a great article which I recommend for further color.

Here are the options implications. The ACL Company Summary is provided below (click the image to enlarge). You can see in the first 50 minutes of trading already 130% of average daily option volume has traded.



The day's biggest trades in ACL shows that the Feb 155 Calls are getting sold @ 7.40 and 7.00. This bet wins as long as ACL stays below $162.



You can see the Options Tab snapshots below for ACL (click either image to enlarge them). Note the prices on the Jan Calls and the Feb Puts.





The consensus (as of right now) seems to be that NVS can ram the deal through for the remaining 23% since they are already 77% owner. Trading opportunities exist if you believe that to be the case. Of course, trading opportunities exist of you don't believe that to be the case as well.

Swiss law prevails here because Alcon is a Swiss company. There may be some hope for the minority shareholders. Note that ACL is trading above the $153 price implied by NVS stock swap.

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China Yukai (CYD) - Multi Leg Bearish Spread

CYD manufactures medium-duty diesel engines in China. The stock is trading at ~ 14.96. You can see the LIVEVOL™ Pro Summary below.



The company averages 406 option contracts a day - with an hour to go in trading it has traded over 21,000 (that's not a typo). The Company Tab snapshot is included below (click the image to enlarge).



Essentially every contract went up in a three legged option trade. The day's biggest trades and Option Tab snapshots are included below (click either image to enlarge it).





The trade was almost entirely opening (see small OI per line in snapshot above):

Sell 7005 Feb 17.5 calls @ 0.30
Buy 7005 Feb 15 puts for 1.40
Sell 7005 Feb 12.5 Puts @ 0.20

Total outlay = 7005*100*(1.40 - 0.30 - 0.20) = $630,450.
Max Gain = 7005*100*(40) + 0.30 + 0.20)= $1,120,800 when stock is 12.50 or lower.
Max Loss. = Unlimited

A payoff diagram is included below (click to enlarge the image).



The bet is that the stock goes down to 12.5. A good way to analyze an "unorthodox" multi-leg option startegy is to break it up into two trades. Here's an easy way to look at this trade:

(1) Buy the Feb 15/12.5 Put Spread
(2) Sell Feb 15 Calls to pay for it

The Charts Tab snapshot below (click to enlarge) illustrates that the stock is at/near a high and may be what chartists call "toppy."



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Kongzhong (KONG) - Opening Size Call Buyer

KONG is a $400 million Chinese 2.5 G mobile interactive entertainment provider in China. The stock is up ~13% and IV30™ is up 23% as well. The LIVEVOL™ Pro Summary is included below.



The company averages 437 option contracts a day - already nearly 7,000 have traded just an hour into the day. 6,800+ have been calls - a 253:1 call to put ratio. The Company Tab snapshot is included below (click the image to enlarge it).



The Feb 12.5 calls are the action. Over 6,700 have been purchased on essentially no open interest (OI) - these are opening order purchases. The day's biggest trades snapshot and the Options Tab snapshot are included below (click either image to enlarge them).





The Charts Tab snapshot below (click the image to enlarge it) illustrates the stock move today, the vol increase and the unusually high level of option volume.



Vol is up on call purchases - the skew is changing shape from the classic volatility smile (smirk) to an upward curving smile. The demand for the calls is going up --> that means vol is going up. This is "irregular" but not "uncommon" when one line continues to trade on the offer.

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GAP Tea Company (GAP) - Call Accumulator Paying Up

GAP is a $355 million company in retail food. The LIVEVOL™ Pro Summary is included below.



The company averages 517 option contracts traded a day. With an hour and a half to go there have been nearly 3,000 contracts traded. Further, the call to put ratio is 101:1. The Company snapshot is included below (click the image to enlarge it).



The biggest trades of the day snapshot below (click the image to enlarge it) shows that someone is buying the Jan 12.5 calls (green color implies trading on the offer - i.e. probably customer purchasing). The Options Tab snapshot below (click to enlarge) shows that over 2,700 of these calls have traded.





The open interest (OI) in the Jan 12.5 calls is ~2100. However, the Level II snapshot below (click the image to enlarge) shows that this OI has been steadily growing of recent.



The OI started rising on 12/24. Looking at the Jan 12.5 calls on 12/24 on the Time & Sales Tab reveals that those orders were purchases as well. This implies that the 2700 traded today are new positions - adding to the current one. Note the purchasers paid 0.42 and 0.45 on 12/24. Today they are paying up to 0.50.



This is call accumulation paying up as the accumulation continues on a 101:1 ratio calls to puts. Note also the May 12.5 calls with OI of 1,324 jumped by 900 on 12/23 - these trades were also purchases from what I can see.

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Avalonbay (AVB) - Opening Bearish (lopsided) Straddle

AVB is trading ~85.16 today with IV30™ at 34. The LIVEVOL™ Pro Summary is included below.



The company averages 2,189 option contracts traded a day. In the first hour and a half of trading today nearly 3,300 contracts have traded. Further, 3,173 of those were puts (26:1 put:call ratio). The Company Tab snapshot is included below (click the image to enlarge it).



The day's biggest trades snap below (click image to enlarge) illustrates that the Apr 80 puts have been trading on the offer (green coloring is on the offer) over 3,000 times. You will note that the condition reads "Spread" which is in fact incorrect from the exchange. The exchange incorrectly marks a trade as a "Spread" if it has to adjust prices later. The trade went up against 85.40 stock (traded delta neutral) not against the 85.25 stock that the exchange originally reported. Thus, the incorrect condition from the exchange.



An easy way to see that this was not a spread is simply to go to the Options Tab. A snapshot of the Apr options is included below (click the image to enlarge). Since only 3,300 contracts in total have traded and 3,155 of Apr 80 puts traded - it obviously wasn't spread against any other options. The Options Tab snap also demonstrates that the OI (218) is much smaller than the trade volume (3,155); this was an opening position.



The Apr 80 puts traded 4.70 vs. 85.40 stock delta neutral (let's assume a 34 delta per the Options Tab). That is the equivalent of buying 2 puts and 1 call. Here is the calculation for the call purchase based on 85.40 stock purchase with puts:

Call = Put + parity + interest - dividend
= 4.70 + 5.40 + ~0.20 - 0.89
Call = 9.41

So the trade buys one straddle for 9.41 + 4.70 = 14.11 and one additional put for 4.70.

The straddle makes money at expo. if the stock goes above 94.11 or below 65.89. Since the trade also has a long put which makes money at expo. with the stock below 75.30 (80 - 4.70) this is a bearish bet. It also gets long vol, which is generally bearish.

The snapshot of the Charts Tab below fills in the rest of the picture. The stock has run from 69 to 85 in the last couple of months. Click the image below to enlarge it. Note you can also see the IV30™ (red line) relative to the HV30™ (blue line) on the bottom portion of the image.



This is a bearish bet on a stock with a $17 (25%) run up in recent months. Keep in mind AVB's business (Real Estate Investment Trust).

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