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Bears Climb Aboard Royal Caribbean Cruises Ltd.

Sarah Wasserman (swasserman@sir-inc.com)

3/11/2010 1:03:26 PM

Option activity ramped up on Royal Caribbean Cruises Ltd. (RCL) Wednesday, with put volume soaring to nearly double the cruise concern's daily average. Specifically, RCL had volume of over 6,700 puts change hands, well above the expected average put volume of just 3,600 contracts.

The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 1.57, in the 73rd annual percentile, revealing that short-term option players have been more bearish toward RCL only 27% of the time during the past year.

The April 28 put saw the most activity Wednesday, with 4,656 contracts trading on open interest of just 277, indicating a surge of new positions at this strike. What's more, 93% traded on the ask side, indicating that the majority of these puts were bought to open.

What's more, it appears that one trader was responsible for most, if not all, the volume at this strike. Wednesday morning, seven blocks totaling 4,349 April 28 puts crossed the tape at the ask price. Overnight, open interest at this strike increased by 4,458 positions, revealing buy-to-open activity. By buying to open the April 28 put, the trader is bearishly betting that RCL will coast into April expiration below the $28 level.

RCL has surrendered 21% since the start of 2010, and is currently exploring the $30.60 level.

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Put Traders Flock to Dr Pepper Snapple Group (DPS) Despite Upgrade

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 10:46:17 AM

The shares of Dr Pepper Snapple Group (DPS) are up nearly 4% this morning, tagging a fresh 52-week high after the stock was upgraded at UBS to "buy" from "neutral." The brokerage firm also lifted its price target to $42 from $31, saying it doesn't believe the market is fully valuing strong fundamentals for the business as well as share repurchase programs. The company has received $900 million before tax from a licensing deal with PepsiCo (PEP), and UBS said it expects the company to get another $800 million to $1.1 billion from a similar deal with Coca-Cola (KO). The Coke deal would be worth between $3 and $5 a share, all of which will likely be returned to shareholders, the broker said.

Sentiment is mixed toward the shares on Wall Street. According to Zacks, the stock has earned four "strong buys," two "buys," and five "holds."

Meanwhile, options players are skeptical of the shares. The Schaeffer's put/call open interest ratio comes in at 1.13, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio is higher than 82% of all those taken during the past year, indicating that short-term options players have been more skeptically aligned toward the shares only 18% of the time.

Technically speaking, the shares of DPS are up more than 18% since the beginning of the year. The equity has staged a solid rally along the support of its 10-day moving average; an unwinding of the remaining bearish sentiment could add some lift to the shares.

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Traders Prefer Calls on Bed, Bath & Beyond Inc. (BBBY) Despite Downgrade

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 10:32:18 AM

Bed, Bath & Beyond Inc. (BBBY) was smacked this morning with a downgrade from "market perform" to "underperform" by FBR Capital Markets' analyst Stephen Chick. He said the home furnishings retailer has benefited as much as it's going to from the liquidation of Linens 'n Things. The exit of its former rival had helped Bed, Bath & Beyond's market share by about 4 percentage points last year, the analyst said.

Digging into the stock's sentiment backdrop, we find that BBBY isn't particularly well-liked on Wall Street. According to Zacks, the stock has earned nine "buy" ratings and 16 "holds."

On the other hand, options players continue to load up on bullish bets when it comes to BBBY. The Schaeffer's put/call open interest ratio comes in at 0.74, which is lower than 77% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 23% of the time during the past 12 months.

Furthermore, the International Securities Exchange (ISE) has seen 6.6 calls purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 98.7% of all those taken during the past year, pointing to a growing optimism.

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Call Trading Shoots Higher on CA Inc. (CA)

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 9:33:56 AM

After the close on Wednesday, CA Inc. (CA) said it would pay $350 million in cash to acquire privately held Nimsoft Inc. The deal, expected to close by the end of the month, brings CA greater expertise in monitoring how information technology is performing for its clients. The acquisition underscores the business software maker's efforts to expand its sales with smaller and mid-sized companies and buttress its cloud-computing products.

"With our planned acquisition of Nimsoft, CA will be equipped to capture several important growth market segments," Chris O'Malley, who runs CA's cloud-computing services, said in a press release. "Penetration of these markets will further expand our global leadership in IT management and complement our existing strength with large enterprise customers."

Ahead of the announcement, the stock has seen a jump in call trading. During the past 10 trading sessions, the International Securities Exchange has seen nearly 22 calls purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 91% of all those taken during the past year, pointing to a growing optimism.

However, the Schaeffer's put/call open interest ratio comes in at 0.77, which is higher than 60% of all those taken during the past year. This high ratio indicates that there were is still ample room for optimism to grow toward the shares before it reaches extreme levels.

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Pessimism Blankets United Technologies Corp. (UTX) as Traders Load Up on Puts

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 9:13:44 AM

United Technologies Corp. (UTX) announced after the close on Wednesday that its board authorized buying back up to 60 million shares of the company's common stock. The program, worth up to $4.3 billion at current prices, replaces a previous one that was near completion. United Technologies bought back about $1.1 billion in shares in 2009, and expects to buy back about $1.5 billion in 2010.

Overall, options players remain extremely skeptical of the shares. The Schaeffer's put/call open interest ratio rests at 1.17, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio is also higher than 87% of all those taken during the past year, indicating that short-term options speculators have been more pessimistically aligned toward the shares only 13% of the time.

The International Securities Exchange has also seen an increase in put trading. During the past 10 trading sessions, 1.75 puts have been purchased to open for every one call purchased to open. This ratio is higher than 87% of all those taken during the past year, pointing to a growing skepticism.

On the other hand, Wall Street is still enamored of the company. According to Zacks, 15 of the 20 analysts following UTX rate it a "strong buy." This configuration leaves ample room for potential downgrades, which could weigh on the shares.

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Cheesecake Factory Inc (CAKE) $26.66 +2.40%

3/11/2010 2:19:54 PM

Cheesecake Factory (CAKE) touched a new 52-week high and was recently up 60 cents to $26.63. Options volume is running 10X the average daily, with some unusual activity seen in July and October puts. A total of 20K puts traded, compared to 2290 call options. July 22.5s are the most actives. 7723 traded (89 percent ask). The top two trades were 607 and 594 contracts at 65 cents. July 20 puts are trading 92 percent on the bid and so some of today's flow might be spreads. July 25, 17.5, Oct 20, and Oct 17.5 puts are seeing interest as well, with volume exceeding open interest in all six contracts. No news today. CAKE was the subject of a downgrade Tuesday (MKM Partners to Neutral). Implied volatility is flat around 35 percent.

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Terra Industries (TRA) $46.88 -0.15%

3/11/2010 12:19:54 PM

Terra Industries (TRA) is off 10 cents to $46.85 and an investor pays 30 cents for the Mar 45 - 46 put spread, 15000X. It might roll a position up in strikes, but seems like a defensive play. CF Industries (CF) has started its exchange offer for TRA common stock at $37.15 in cash plus .0953 of a share of CF. CNBC's Faber said yesterday that Yara's Board of Directors is meeting today to see if they want to revise, perhaps top, CF's bid. They have 5 days to do so. The put spread is likely a short-term hedge should, for whatever reason, the buyout fall apart. March options come off the board at the end of next week.

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Citigroup Inc (C) $4.02 +1.53%

3/11/2010 10:59:56 AM

Interest in Citi (C) calls continues. 1.47 million traded in the name yesterday, creating 223,000 contracts in new open interest. Today, shares are up 6 cents to $4.02 and one player pays 10 cents for June 5 calls, 50000X. 240K calls and 66K puts traded in Citi during the first 30 minutes Thursday.

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Waters Corp. (WAT) $65.07 +0.0%

3/11/2010 10:19:55 AM

Waters Corp (WAT) was mentioned intraday Wednesday, with unusual call action and it continued throughout the day with shares closing near highs, up 1.6% while IV spiked 13% higher. More than 6,600 calls traded, which is 35X average, and comes after the recent takeover of Millipore has many thinking Waters could be next as a filtration play. The March 65/70 and April 70 calls attracted buyers, mostly offer side on the 100+ contract orders. Shares trade 15.4X earnings and 18.8X cash flow. The recent breakout has shares eyeing a move to 2008 highs around $70, although a takeover would likely fetch a 25% or more premium.

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Valero Energy (VLO) $20.55 +5.23%

3/10/2010 3:19:57 PM

Oil refiner Valero (VLO) is up $1 to $20.53 and options trading is brisk Wednesday, with 33,000 calls and 19,000 puts on the tape so far. The gains in the shares and the heightened options activity comes the day after Reuters reported that PBF Investments might be interested in buying VLO's Paulsboro refinery in New Jersey. Shares are now not far from session highs and the options action is really scattered: March 20 calls, March 20 puts, Sep 23 calls, Sep 25 calls, April 21 calls, Mar 19 calls, Jan11 20 puts, Mar 21 calls, June 18 calls. Meanwhile, implied volatility is up about 2.5 percent to 32.

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CBOE Volatility Index (.VIX) $18.23 +1.73%

3/10/2010 2:19:57 PM

CBOE Volatility Index (.VIX) is up .29 to 18.21 and looking to extend this week's winning streak. After falling during 17 of 18 trading sessions, VIX is up 4.5 percent since Friday and might be seeing some strength due to upcoming expirations -- VIX options a week from today and then the "Quadruple Witch" next Friday. In the options, noteworthy trades in the VIX today include two large blocks totaling 80K May 35 calls on the bid of 45 and 50 cents per contract. These blocks printed in morning action and, since it looks opening, might reflect expecations that VIX is unlikely to make a signficant move higher by the VIX May expiration (69 days.)

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Kinetic Concepts Inc (KCI) $43.99 +1.57%

3/10/2010 1:00:01 PM

Kinetic Concepts (KCI) is halted, news pending ahead of a trial verdict against Smith and Nephew. Shares are up 68 cents to $43.99 and options were active ahead of the halt, with 16K puts and 7500 calls traded. The top trades: 4700 and 4600 March 40 puts on the bid, 75 cents per contract. Looks like put sellers. Another player sold 1750 Mar 50 calls at an average of 37.5 cents. Implied volatility is up about 6 percent to 78.

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Microsoft Corp (MSFT) $29.02 +0.76%

3/10/2010 12:19:57 PM

The top equity options trade so far today is a block of 38K January 35 calls on Microsoft (MSFT). It was bought at 52 cents per contract and not tied to stock, according to a source on the floor. It might close an existing position, as open interest is 77.7K.

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Norfolk Southern (NSC) $53.74 +0.0%

3/10/2010 10:19:58 AM

Norfolk Southern (NSC) is often considered the best managed rail company, but the stock is not at 52 week highs like it's counterparts Union Pacific (UNP) and Kansas City Southern (KSU). That could change with a break of $55, which would target a move to $60. Option traders were decisively bullish Tuesday, with 4,425 calls trading, 3X average, and 90% offer side buys. The April and June $55 calls both saw buyers, with 2,800 in April $55's changed hands. Shares trade 13.2X earnings and 18X cash value, and recently were raised to Overweight at Barclays with a $62 target. Recent improvements in pricing, shipping volumes, and improved outlook for coal were cited as reasons for the upgrade.

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Daily Rundown, March 10

3/10/2010 8:59:58 AM

Early indications point to a steady open on a slow news day and very quiet trading across international financial markets Wednesday. About an hour before the opening bell on Wall Street, stock index futures hint at modest early gains for both the Dow Jones Industrial Average and the NASDAQ.\n
\nStock benchmarks saw narrow trading overseas. Japans Nikkei finished down .04 percent and Hong Kongs Hang Seng was unchanged. In Europe, Frances CAC 40 Index is up .3 percent, Germanys DAX up .2 percent, and UKs FTSE is flat.\n
\nIn the US, the focus turns to the only economic stat of the day at 10:00 a.m. eastern time. A report on wholesale inventories is expected to show an uptick of .2 percent for January.\n
\nWith no other news to guide the action, bonds are drifting in aimless trade. The benchmark ten-year Treasury is down 2/32nd and now yields 3.71 percent.\n
\nThe dollar added .49 to 90.43 against the yen. The euro gained .0004 to 1.3602 against the buck. \n
\nCrude oil added .25 cents to $81.74 a barrel and gold rose $2.1 to $1124.40 an ounce.\n
\nAmong the stocks to watch, Intermune (ITMN) launched 64.5 percent higher after an FDA panel voted to approve the companys pirfenidone. Factset (FACT) jumped 66 percent after Abbott (ABT) made a $27 cash bid for the company. American Eagle (AEO) rose 5 percent on better-than-expected earnings. Navistar (NAV) lost 7 percent after reporting a quarterly profit of 23 cents per share, which fell well short of analyst estimates of 85 cents. Retailers will be in focus after the closing bell with a number of second tier names -- Hot Topic (HOTT), Mens Wearhouse (MW), Jo-Ann Stores (JAS) -- slated to release results. \n

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More Options Commentaries and Observations by Schaeffer�s

Sizing Up Heavy Call Activity on Star Scientific, Inc.

Call buying has climbed lately on Star Scientific, Inc. (CIGX), with traders showing an overwhelming preference for bullish bets over their bearish counterparts. During the past five days, traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 4,668 calls on CIGX, compared to just 11 puts. In other words, traders have scooped up 424.36 times more calls than puts during the past week.

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Palm Inc. at a Technical and Sentiment Crossroads as Earnings Near

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Eyeing the Bearish Prospects for Energy Conversion Devices, By the Numbers

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Bulls Rally Behind Broadcom Corporation

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