Options Report: Coca Cola, Countrywide, Record CBOE Volume
Options speculators are hoping for a Coke and a big smile in the call options that are being accumulated today.
"In general Coca-Cola is a share that really since 2002 has underperformed both competitors like Pepsi and the S&P 500," says Rebecca Engman Darst, options analyst at Interactive Brokers. "Coke is up 12.1% since late 2002 compared with 64% for the S&P 500."
Positive news, including word today that the merger of eight Coca Cola bottlers in Germany is nearly complete, is helping to boost bullish sentiment surrounding the stock, according to Darst.
The heaviest activity is the September 55 Coke calls where over 22,000 contracts have traded versus open interest of 3,525 contracts. Darst says the volume indicates the trade is "not aberrant" and appears to be bullishly keyed into stronger future business prospects.
Bearish activity continues to abound in trading of Countrywide options. The market may be telegraphing a coming potentially large move in the stock if straddle prices are any indication.
An options investor uses a straddle, which is the simultaneous purchase of a call option and a put option with the same strike price, when there is uncertainty over the direction of the underlying stock.
In the case of Countrywide, the August 25 straddle is priced at $5.80, meaning for the trade to be profitable before expiration on the third Friday of this month, Countrywide shares will have to move about 20% in either direction.
In the overall Countrywide options universe speculation has been biased to the bearish side. Today alone, put volume is outpacing call volume by a margin of 3 to 1 and implied volatility has risen above 100% level indicating anticipation for a big move in the stock.
Countrywide is the nations largest home mortgage lender.
If gloomy signals from the options market aren't enough, Countrywide chairman and co-founder
Angelo Mozilo continues to be a heavy seller of the company's shares.
This past Friday Mozilo exercised options for 46,000 shares of common stock under a prearranged trading plan. According to a Securities and Exchange Commission filings, he exercised the options for $14.69 apiece and then sold all of the shares the same day for $29.59 apiece.
SEC filings show Mozilo has been netted about $4 million a week on his options sales since last December.
While July may have been the worst month for stock performance in 3 years, the market volatility and drop has been a boon for the The Chicago Board Options Exchange (CBOE).
The exchange says total volume for the month was 87.2 million stock options, index option and ETF contracts, making July 2007 the busiest month ever at CBOE. July’s totals topped the previous monthly record, set in last March, of 83 million contracts and represented an increase of 64% over July 2006 total.
In addition, four of the top ten busiest days in CBOE’s history occurred in July 2007, and July’s average daily volume of 4.15 million contracts made it the first month in Exchange history to average more than 4.0 million contracts daily.