Options Eye Insurers, MOT and Railroads
Options are playing on early morning earnings action, according to Rebecca Darst of Interactive Brokers.
"It's been a tough, volatile week for insurers, many of whom have been out with earnings this week, but it was yesterday's egregious earnings miss and dividend cut by LandAmerica that seems to have sent options traders pre-emptively on the defensive," Darst said on CNBC's "Squawk Box," early Thursday. "And First American , which is due to report, I believe, this morning before the bell, their implied volatility rose by more than a third yesterday. That was more than just about any other company except EMC Corp, which was a whole other story. The point being that now it's implied volatility in First American options at 95 percent, that is twice the historic reading on the stock, which should give you an idea that prices on options are really pumped with 'vol' at the moment. Puts out-traded calls yesterday by five to one, and we saw option traders take out opening positions, fresh positioning, in August puts at the 17.50, 22, and 22.50 strikes, so it's looking pretty defensive on First American. Look for a big move for them today." (See her full comments in the video).
First American Options Chain
LandAmerica Options Chain
"Volatility has come off about 22 percent in Motorola options since Monday," Darst said. "That was when news came out of a reorganization of their home networks mobility unit. Speculation was that it would make that unit easier to sell, perhaps, and we saw a big move in volatility, and front-month options are pricing at about $1.11 move on back of the earnings today, and what we saw yesterday was option traders buying heavily into six and seven dollar puts in the front month, whereas eight dollar calls tended to trade two-way, to buyers and sellers, so, if the option activity yesterday is any indication, they're looking pretty defensive."
Motorola Options Chain
Burlington Northern Santa Fe ...
"It's been a very giddy week for the railroad stocks," Darst said. "First they rallied on Tuesday on back of a broader market advance that was sparked in part by a pullback in oil prices, then the sector as a whole moved forward again yesterday, on back of that Goldman Sachs report that speculated, perhaps, the pullback in oil prices might be just temporary, so traders dumped airline stocks and trucking stocks, and embraced the railroads. The way this played out in the options market was that traders flocked prodigiously into the calls of Burlington Northern Santa Fe . Call volume yesterday set a new 52-week high that was besting the previous high set back in September 2007, and implied volatility rose 23 percent on the session, so it's sitting just under 40 percent. When you compare that to the historic volatility reading in Burlington Northern Santa Fe, which is 31 percent, that should indicate you're going to pay a little more for those puts and calls because of the 'vol' right now."
Burlington Northern Options Chain