Its implied volatility reading soared nearly 30% and now exceeds 89% - this against the 51% degree of fluctuation that its shares have shown historically –a strong hint that option traders don’t believe the worst of the bad news – or the share price hemmorhaging – has been fully fathomed by the market as yet. Traders expressed this by bailing out of November 25 calls despite a more than 77% erosion in the value of these positions overnight, and heavy buying in the 22.50 puts, driving the price of these contracts up nearly 200%. A look at the overall put/call ratio in Washington Mutual shows nearly 1.5 put positions open for every call.
COF –Market cassandras looking for signs of seepage from the summer’s credit and subprime fiascoes into the credit card segment found troubling news in Capital One Financial. The country’s leading independent credit-card issuer today sustained its biggest single-day loss in more than a year before acknowledging that costs tied to charge-offs of unpaid loans could stretch into “the mid-5 billions.” With shares down more than 15% to $50.50, implied volatility on Capital One options surged more than 25% and now exceeds 66%, by our market scanners. It appears that traders rushed to shed January 85 calls, which traded to the middle of the market at $0.30, while heavy liquidity in the November puts occurred at strikes 55 and 50, the latter trading at 5 times the existing open interest on that strike. Option traders are currently pricing in better than one-in-four chance that Capital One shares will remain below the abysmal $50 level for the next 9 days.
MIR– Mirant Corp – A look at the pickup in options volume in energy giant Mirant earlier today suggested rumors percolating in the market earlier today. Contracts are moving at 6 times the average volume, but the fact that shares traded 2% lower to $42.11 and implied volatility remained fairly static is a hint that any rumors may be fairly low-watt. Of interest to us was heavy shorting in the November 40 calls on volume more than twice the existing open interest, along with what may be buying in the December and January 42.50 calls. Mirant’s current share price represents an 11% discount from its 52-week high.
HL –Booming commodities have put Hecla Mining, which mines silver, gold, lead, and zinc in the Western U.S. and Central and South America, in a sweet spot.
