GE - Can true-blue bellwether General Electric make it 4 consecutive quarters of positive earnings growth? GE is due to report earnings in the premarket hours of Friday. The report coincides with the expiration of January options, which could explain the surge in January and February traffic that catapulted GE to among the top ten tickers ranked according to our “Most Active By Option Volume” scanner. The company got a bit of upside PR this morning on news that NBC, the national network which GE owns, has already cinched two-thirds of its ad sales goals for the 2008 Beijing Olympics. In any event, the inclination among traders appeared suggestive of upside share price movement, with heavy volume in the January calls at strikes of 35 and 37.50. Buying in the 35 puts could suggest some straddle-buying ahead of the earnings announcement – but the price of a long position in that combination would require a 3% up-or-down price move by closing bell on Friday. Action in the February action also showed eager buyers and sellers on either side of the 35 line, with buying interest in the 37.50 calls.
DF – Earlier today a JP Morgan analyst upped his rating on dairy foods Dean Foods, the parent company of the Horizon Organic, Land o’Lakes, Meadow Gold and Silk Soymilk grocery brands. The analyst cited an anticipated drop in milk prices during the third quarter of this year, as well as the company’s ongoing bid to restructure. The upgrade sent Dean Foods shares 3.5% higher to $25.86, and the nearly 5,400 options in play this afternoon represented about 7 times the level of activity we normally see in this ticker. With the company due to report earnings on February 13, it was no surprise to see call-spreaders enter fresh positions in the February contract, buying the 25 strike and selling the 30, expecting limited upside on back of positive numbers. More surprising was the degree of buying interest we observed in out-of-the-money puts in the March and June contracts – the latter at strikes as low as 20. In all, 3 times as many puts traded as calls today – most of these to buyers – on a day of largely positive news flow for Dean Foods. A look at overall open interest also shows the bears still leading the cow, with 1.35 puts open for every call.
SLE – Today’s news of a whopping 30-cent surge in March wheat futures (this tacked on to a 92% increase in spring wheat prices over the past year) left its mark on shares of food giant Sara Lee. The company is one of several food-staple producers (among them Kellogg and General Mills) that have passed along higher wheat costs to consumers over the past year. With shares down .78% at $15.21, we saw options trade at more than 10 times the normal level, with put volume at its highest in three months. Volume distribution showed traders rush to enter fresh long positions in January 15 puts, which at 15 cents a pop are relatively cheap due to the miniscule time value of the contracts (they’re set to expire on Friday). The position would protect buyers from a sustained break below the $15 mark heading into Friday…which is still just 45 cents above Sara Lee’s 52-week low.
IFX – Shares in Infineon, the second-largest maker of semiconductors on the European continent, posted respectable gains on the Frankfurt bourse this morning, coming off a new 52-week low in U.S. trading on Friday. With ADR’s in the German company extending the slight recovery with a 4% increase to $10.42 this afternoon, our market scanners detected an surge in volume on its options to more than 28 times the normal level. This coincided with a more than 22% rise in implied volatility to 46% - making it one of the day’s top volatility gainers. Our observation of time and sales showed traders entering fresh short positions in March 12.50 calls, accepting the 25-cent premium in an implicit bet that despite recent positive buzz on the outlook for Infineon and other global chipmakers, Infineon shares won’t break past $12.50 by March. It bears noting here that its stock price has depleted by 33% over the past 3 months alone.
IBM – Big Blue provided a welcome heave-ho to much of the apocalyptic sentiment that seized the market on Friday. Earlier this morning, IBM reported an unexpected 24% increase in Q4 earnings compared to the same quarter in the previous year.
