Today’s tickers: LDK, LIZ, PIR, CELG, ERIC, RHT, NKE, ORCL, MBI
LDK – Shares in LDK Solar, the China-based maker of multicrystalline silicon wafers used the production of solar cells, cannonballed 26% to read $48.71 this afternoon after a single analyst downgraded the stock to sell, citing a tighter outlook for the company’s margins owing to higher silicon costs. Options in LDK, which for weeks now have been a marquee feature on our volume and volatility screens, traded on a volume of more than 84,000 lots this afternoon – measuring up to 40% of its total open interest and reflecting its highest level of call volume on record. While twice as many calls are represented in today’s overall volume, traders appear to be making fresh bets on volatile price action persisting into the eleventh hour of LDK’s December contract. They’re doing this through fresh buying and selling in the December 50/55 strangle combination, a position which costs a combined premium of $2.50 and covers the buyer against an upside break past $57.50 or down below $47.50 over the next day. A speculative seller of this combination would pocket the $2.50 premium, betting that even an end-week recovery for LDK shares won’t take the price past $50. A look at time and sales suggests that more of these combinations are being bought rather than sold – a clue that the market’s money favors volatility heading into the final day of the contract. While it’s odd to see fresh volatility plays like this on the eve of expiration, consider LDK’s sensational price action just over the past month. In late November the company’s shares were trading at around $27.
LIZ – Earlier this week we noted an upward spike in option volume in womenswear maker Liz Claiborne, coinciding with a 52-week low, and despite high-panache measures from the company to rejuvenate the brand by recruiting “Project Runway” Tim Gunn and even hiring climatologists to chart weather patterns that will make its seasonal garment shipments more weather-strategic, its share price can’t seem to escape its current cloud. Liz shares are trading .60% lower this afternoon at $21.36, about 50 cents higher than the 52-week low set on Monday. Implied volatility remains elevated at 51% and a 16-fold increase in option trading volume showed the highest level of put traffic in at least a year. Given the comparable volumes at play, we surmise that today’s volume is rooted in fresh January put spreads between the 22.50 and 25 strikes. Though both contracts traded to the middle of the market, we’re conjecturing that this is bear put spread positioning, a low-risk, limited-reward strategy that profits from a further erosion in share price. The trader in this instance would sell January puts at the 22.50 strike for $1.88, using some of the premium to defray the cost of fresh longs at the 25 strike, which could be had today for $3.63.
PIR - Shares in Pier One Imports, the maker of the iconic, dorm-friendly papasan chair and other ethnic-inspired wicker-and-rattan home furnishings, staged an unprecedented 40% rally to read $5.51 this afternoon. Earlier this morning the company reported a net loss for the third quarter that were less extreme than analysts had estimated.
