Options Report: Verizon, Expiration, optionsXpress, UTC
While Vodafoneitself has debunked a story in FT.com's Alphaville blog that Vodaphone was "mulling" a $160 billion takeover of Verizon, Verizon options have been actively traded.
Not long after the FT.com's Alphaville report was released early Monday, Vodafone said it had no plans to bid for Verizon. That didn't stop options speculators from buying over 2,000 July 45 call options which are bid at zero, with at offer of 5-cents.
"It's just a cheap shot," said theflyonthewall.com option strategist Paul Foster. "That isn't buying from small retail customers, it's hedge funds with lots of money to burn either taking a cheap shot, or hedging a short position."
Volatility and Options Expiration
Options expiration looms this Friday, Foster thinks we will see a move lower in volatility readings as gauged by the Volatility Index , better known as the VIX. Foster says, "look for high volatility, but it won't be at today's level by Friday afternoon. It will either be 5% above or below present levels and you would presume with the present pattern it's likely to be lower."
Foster says earnings this week are likely to "pacify" the market and that it could be a "non issue week" that would end up pushing the VIX lower.
But for today, even as the bull run continues on Wall Street, the VIX continues to move higher. Generally the VIX, as a gauge of fear in the market, is known to decline in rising markets and rise in declining markets. The VIX has managed to stay above the 15 level in recent weeks amid fears deterioration in pools of subprime mortgages may cause a further rise in treasury bond yields, or more hedge funds to falter.
Unusual Options Activity
Following last week's rebirth of M&A activity and sealed deals Monday involving IHOP's buyout of Applebee's and DJO's purchase by a company controlled by Blackstone, Fostersays speculation about other potential deals has flooded back into the market and has boosted options activity.
Online options trading company optionsXpress , the subject of takeover conjecture in the past, notes Foster, has seen enough of an options volume spike to surpass open interest in both the July 27.5 calls, which expire Friday as well as the August 27.5 calls.
Foster says another family of options that has been attracting attention as a speculated takeover play is Mosaic , a producer & marketer of concentrated phosphate and potash crop nutrients. Call options volume has outpaced purchases of puts by a margin of 9 to 1. August option implied volatility has moved to a reading of 50, vs a six month average of 37, indicating potential larger price fluctuations.
United Technologies with its six far-reaching business segments including Otis, Carrier, UTC Fire and Security, Pratt and Whitney, Hamilton Sundstrand, and Sikorsky -- will post earnings on Wednesday morning. Bullish bets are overwhelming purchases of puts in the August options by a margin of 14 to 1. Volume has been strong enough in the July 75 and August 80 and 85 call options to surpass open interest in all three contracts.