Today's tickers: PALM, RIM, EPIX, UAUA, ADBE, ZGEN, NLS, KWK, WPZ, BBY, GS
PALM – Option trading on Tuesday afternoon showed the makings of a faceoff between two of the market's highest profile makers of smart phones. The maker of Treo and Centro handhelds, Palm is due to report Q3 earnings after the bell, which handily explains the 16.7% spike in implied volatility detected by our market scanners this afternoon to 100.5%. Rather more intriguing was the 3.5% gain in its share price to $5.85, this on the eve of an earnings report that follows 5 consecutive quarters of negative earnings growth for Palm, negative returns of 14.6% for its share price for the year to date, and speculation that it may be forced to let go 10-20% of its workforce. Let it be said that 2007 has been a year in which Palm has consistently been typecast in the role of homely, sidelined sister to the sharper iPhone and Blackberry. With more than 7,800 option contracts circulating, measuring up to 12% of its total open interest, traders today activated 4 times as many calls as puts. We observed fresh buying in January and February calls at the out-of-the-money 7.50 strikes. The catalyst here appears to be conjecture appearing on CNBC that Palm investor Elevated Partners might look to take the company private.
RIMM – Another high-profile smart phone maker will lay bare its numbers as the market lurches into holiday week. Blackberry maker Research in Motion has enjoyed a charmed run into 2007, and its after-the-bell earnings report on Thursday will follow 6 consecutive quarters of stellar earnings growth, rounding out a year of 152.8% share price appreciation. Today its shares traded a subdued 1.2% higher at $101.46, and with 131,000 options in play this afternoon, it was true to form, one of the day's most active tickers according to our scanners. Implied volatility at 84% is elevated above the 76% historic reading, a hint that option traders are anticipating about 10% more volatility in the coming weeks than RIM's share price has shown historically. Indeed, the price of the December 100 straddle reflects an expected 11% up-or-down price move. This past quarter, RIM has had to grapple with something that comes hard to straight-A students: criticism. Earlier this month the company was subjected to a couple of minor-but-notable downgrades by analysts concerned about its current valuation as well as its prospects if financial sector job cuts in 2008 curtail its subscriber growth. Today, option traders appear eager to buy puts at the December 100 level, given a near-10% discount in premiums today. Calls at the December 100 and 110 also attracted brisk volume from buyers and sellers.
EPIX – Options activity in Epix Pharmaceuticals hit our market scanners today as a 6-fold increase in trading volume coincided with a steep, 43.5% rise in implied volatility to 149.3%. Shares in Epix gained 35.7% to $4.03 following news that its experimental drug for Alzheimer's disease, PRX-03140, showed improvement in memory and cognitive skills on a control group of 10 patients in a clinical study. One neuropsychologist speaking with Bloomberg News called the benefit "among the best ever in an Alzheimer's trial." Option traders took a more cautious tack, mindful perhaps that the current share price is still a 44% discount from the 52-week high of $7.28 set back in mid-April. While fresh volume in the December 5 calls traded to buyers and sellers, option traders appeared inclined take premium in February 5 calls, albeit on meager volume. Still, a look at open interest shows 3 times as many open call positions as puts, a strong indication that sentiment is on the side of Epix.
UAUA - One look at the stratospheric implied volatility reading in United Airlines' parent company UAL and it's a safe bet that option traders don't think we've heard the last of the consolidation scuttle. Topping out at 89.4% this morning, UAL's implied volatility reading is 1.3 times the historic reading, and significant call volume brings to mind the massive upticks in call volume tied to M&A speculation (to wit November 24 and December 4).