Options Activity for Novellus Systems, Inc. (NVLS) and OfficeMax Inc. (OMX)
Tuesday, December 14, 2010



I hope that your trading is going well, as I know that members of S.O.M.E. are making the most of the market movements and their returns.



Today's newsletter includes a look at a rise in put trading on Novellus Systems, Inc. (NVLS) and OfficeMax Inc. (OMX). The purpose of this newsletter is to focus on stocks seeing heavy options trading and gives you a unique insight into each stock's sentiment backdrop.

Novellus Systems, Inc. (NVLS)

Novellus Systems, Inc. (NVLS) rallied to a fresh annual high of $33.24 on Monday, continuing a recent trend. Since September, the tech issue has been marching to a series of higher highs and higher lows along the support of its 10-day and 20-day moving averages.

The high-flying stock has attracted analysts' attention today, with Credit Suisse raising its price target on the shares to $43 from $35. However, despite the stock's technical prowess, most analysts have relatively low expectations for NVLS, with Thomson Reuters pegging the equity's 12-month consensus price target at $29.62 -- a discount to the stock's current price.

Option players, too, are quite skeptical toward NVLS. During the past 10 days, speculators on the International Securities Exchange (ISE) have bought to open 6.8 puts for every call, a ratio which ranks in the 87th percentile of its annual range. In other words traders on the ISE have initiated bearish bets over bullish at a faster pace only 13% of the time during the past 12 months.

This trend continued on Monday, with 1,789 NVLS puts crossing the tape -- more than double the equity's expected single-session put volume of just 754 contracts.

NVLS' January 2011 33 put was most popular, with nearly 1,500 contracts traded -- all of which crossed at the ask price, suggesting they were purchased. Open interest increased by 1,439 contracts overnight, confirming buy-to-open activity at this strike. In other words, it seems that put players are counting on NVLS to pull back from Monday's high.



OfficeMax Inc. (OMX)

Put players have flocked to OfficeMax Inc. (OMX) today, as the shares of the office supplier follow their sector peers into the red. Earlier today, analysts at FBR said Best Buy's (BBY) lackluster third-quarter figures could prove ominous for companies like Staples (SPLS), which obtains more a third of its North American retail sales from consumer-electronics (CE) hardware like PCs, digital cameras, and GPS devices. "We think that the CE category in general will be soft this holiday, excluding Apple (AAPL) and excluding mobile (smartphones), and BBY results echo this view," FBR said.

Just after midday, OMX has already seen more than 1,500 puts cross the tape – about 17 times its predicted single-session put volume. The out-of-the-money January 15 put has garnered the bulk of the attention, with almost 1,000 contracts traded so far. Meanwhile, the near-the-money December 17 put has seen roughly 400 contracts change hands – all of which traded at the ask price, hinting at buyer-initiated activity. However, digging deeper into the data reveals that one speculator is taking the directionless road less traveled by implementing a short-term volatility play on OMX.

Earlier today, the investor constructed a long straddle by purchasing symmetrical blocks of January 17.50 calls and puts. By employing this options strategy, the trader is hoping the shares of OMX either plummet significantly or skyrocket within the options lifetime. As long as the stock's retreat or rally from the 17.50 strike exceeds the initial premium paid for the options, the intrinsic value of the in-the-money option will negate the loss incurred from the out-of-the-money option, resulting in a net profit on the play.

At last check, the shares of OMX have surrendered 3% to flirt with the $17.17 level.



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