A daily feature available on SchaeffersResearch.com is "Options Update." Every day, we'll give a brief recap of some of the hottest news topics and focus on one stock that is the center of some heavy option activity. We hope that this will effectively offer stock information, particularly on equities that are currently popular among those in the investing community.
Breaking news today is that the 30-year Treasury bond, which has not been issued since October 2001, might return. Four years ago, the Government was predicting surpluses, and foreseeing the elimination of government debt. Now the picture is different and, once again, there are deficits to cope with. The Treasury Department will announce its decision on the 30-year instrument on August 3.
The June crude oil futures contract fell on the New York Mercantile Exchange this morning after the Energy Department said that U.S crude supplies rose 2.6 million barrels for the week ended April 29. From a technical perspective, it appears that 50 may be a resistance level right now. I've seen an intraday high at 50.95 but the current price is below 50. Though the cost of gasoline at the pump has rather less financial significance than psychological significance for most consumers, the feel-good factor after some pump prices dipped below $2 yesterday may bring a boost to consumer spending.
Cadillac Kirk
General Motors (GM: sentiment, chart, options) is looking good today. After riding support of its 10-day moving average for six straight days, yesterday it jumped higher to enjoy the support of its 20-day moving average which, encouragingly, is now rising. This morning, Kirk Krikorian's buyout firm, Tracinda, announced that it intends to make a cash tender offer for up to 28 million GM shares, causing the stock to gap. Tracinda is offering $31 per share, a 13-percent premium to GM's Tuesday closing price of $27.77. This offer is without regard to GM's regular quarterly dividend of 50 cents per share, expected to be paid in June 2005. When the deal closes, the purchase will bring Krekorian's holding to 8.8 percent of GM. That is a lot of stock at a bargain price. Ford Motor (F: sentiment, chart, options) , DaimlerChrysler (DCX: sentiment, chart, options) and Toyota (TM: sentiment, chart, options) all gapped up this morning, with investors encouraged by the influx of new money into the sector. Of particular note, F is challenging round-number resistance at the 10 level, and DCX posted a 9.3-percent increase in U.S. April car sales yesterday.
CIGNA Pumps up the Volume
CIGNA (CI: sentiment, chart, options) insured investor interest when it announced strong first-quarter results this morning, earning $2.24 per share (excluding items), well ahead of Reuters' consensus estimate of $1.52 per share. CI increased second-quarter guidance for earnings to $1.35 to $1.55 per share and also upped the full-year view to $6.40 to $6.90 per share. The shares gapped up this morning, revisiting levels not seen since the summer of 2002, with substantially increased trading volumes.
Most-Active Options Update
At 2:04 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,360.5) has moved ahead by 1.01 percent, followed by the S&P 500 Index (SPX – 1,172.52), which has gained 0.98 percent. The Nasdaq Composite (COMP - 1,954.6) has gained 1.11 percent. At 2:04 p.m., 1,968,640 calls and 1,582,798 puts had crossed the tape, for a composite put/call ratio (across all six options exchanges) of 0.80. The CBOE put/call volume ratio for equity options stood at 1.01.
IAC/InterActiveCorp
IAC/InterActiveCorp (IACI: sentiment, chart, options) stock rose this morning after the company reported first-quarter earnings of $68.9 million, or nine cents per share, up from $38.3 million, or five cents per share in the same period a year ago. Excluding items, IACI earned 22 cents per share, two cents better than Thomson First Call's consensus. The stock had fought resistance from its 10-day and 20-day trendlines since April 11, but this morning it moved clear of both, and seems to be maintaining most of the gain.
Technically, the stock has been in a long-term downtrend since July 2003 and, looking at the shorter term, it has been falling since the first trading day of 2005, which somewhat colors today's rise. In fact, the equity's recent bounce higher was abruptly stopped by overhead resistance at its declining 20-week moving average. The stock is also battling resistance at its descending 10-month trendline.
Yet optimism still reigns. The Schaeffer's put/call open interest ratio (SOIR) for IACI is 0.40, indicating 10 calls for every four puts in the front three months of options. This is optimistic, more so than 98 percent of the readings taken over the past year, and the optimism has steadily increased. A quick look at Zacks reveals that 14 analysts rank the stock, and no one sees it as a "sell." There are seven rare "strong buy" ratings and another three "buys." From a contrarian viewpoint, this is a recipe for disaster, as there is more room for downgrades than upgrades in this configuration. If the stock resumes its downtrend, the optimism could unwind in the form of increased selling pressure.
One caveat: almost 27 percent of the stock's float, or 51 million shares, is sold short right now, and it would take more than six days of trading to close out all those short positions at the equity's average daily trading rates. However, most indicators are still to the downside and the stock earns a Schaeffer's Equity Scorecard rating of just 2.5 out of 10.
** The tables below reference the most actively traded call and put contracts across all six exchanges.**
For more information on how you can access the powerful sentiment tools mentioned above, check out Schaeffer's Sentiment PowerTools.
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