Today's column includes a major shake-up in the ranks at Sequenom, Inc. (SQNM), a potential rescue plan for CIT Group Inc. (CIT), a liquidity update from Delta Air Lines, Inc. (DAL), and a bullish note for The Coca-Cola Company (KO). Each day, Options Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.
Sequenom, Inc.
Late Monday, Sequenom, Inc. (SQNM: sentiment, chart, options) announced that it fired Chief Executive Harry Stylli and four other employees as a result of an internal investigation into the mishandling of clinical results. An independent panel of directors determined that SQNM failed to use adequate protocols, controls, and supervision in its attempt to develop a Down's syndrome prenatal diagnostic test, and the company is warning people today not to trust any data that's been reported so far.
Along with Stylli, SQNM dismissed Elizabeth Dragon, senior vice president of research and development. Three other unnamed employees were also terminated, though they denied any wrongdoing. Chief Financial Officer Paul Hawran resigned voluntarily, as did Steven Owings, who supervised commercial development in prenatal diagnostics. Chairman Harry Hixson has been named as interim chief executive.
SQNM is down more than 41% in pre-market trading, adding to its already sizable year-to-date drop of 71.3%. Analysts at Caris have a bleak forecast for the security, as the brokerage firm trimmed its price target on the shares from $3 to 50 cents this morning.
Meanwhile, with short interest accounting for 41% of SQNM's float, calls have recently been the options of choice. Peak call open interest of 14,704 contracts lies overhead at the 7 strike, as some shorts were apparently hedging against a continuation of the equity's short-term rebound. However, today's pre-market plunge suggests that upside risk is rather limited for the bears during the short term.
CIT Group Inc.
The New York Post reports that hedge fund manager John Paulson is pondering a plan to rescue CIT Group Inc. (CIT: sentiment, chart, options). Paulson is apparently proposing a merger between CIT and IndyMac, the failed mortgage lender that Paulson & Co. acquired from the Federal Deposit Insurance Corp. (FDIC) earlier this year. However, none of the parties involved were available to comment on the speculation.
CIT has added 11% ahead of the bell to trade near $1.86. The stock's recent rally attempts have been capped by the $1.80 level, so traders should keep an eye out for a possible breach of this area at the open.
Meanwhile, traders on Monday flocked to CIT's November 1 put, where more than 100,000 contracts crossed the tape. Implied volatility soared 12% as a result, and open interest at this strike arrived today at 200,861 contracts -- nearly double yesterday's level.
Delta Air Lines, Inc.
Delta Air Lines, Inc. (DAL: sentiment, chart, options) reported last night that it closed $2.1 billion in financing deals, boosting its liquidity by $600 million as a result. Additionally, DAL said it expects to generate $600 million in incremental liquidity after refinancing $1.5 billion from bank credit and revolving facilities of its Northwest Airlines arm. The airline now projects its unrestricted liquidity to be $5.6 billion as of Sept. 30.
DAL is fractionally higher in electronic trading, suggesting the shares will attempt to reestablish a foothold at their 10-day moving average. The stock has settled below this short-term support in each of the past three sessions.
Despite the security's recent run higher, option traders remain skeptically aligned toward DAL. The stock's Schaeffer's put/call open interest ratio (SOIR) weighs in at 0.75, in the 86th annual percentile.
The Coca-Cola Company
Citigroup started coverage of The Coca-Cola Company (KO: sentiment, chart, options) today with a "buy" rating and a price target of $61, implying expected upside of nearly 15% from the stock's closing price on Monday. Analyst Wendy Nicholson said she expects Coke to benefit from the weakening U.S. dollar, since 75% of its profit is generated overseas. She added that KO enjoys a healthy partnership with its network of independent bottlers.
KO has added just less than 1% ahead of the open, adding to its modest year-to-date climb of 17.4%. The equity recently barreled into resistance in the $54 neighborhood, which previously acted as a technical roadblock in 2004.
Speculative investors seem keenly aware of this looming hurdle, as most call players have gravitated toward an in-the-money strike. KO's October 52.50 strike is home to peak call open interest of 23,296 contracts, compared to just 13,343 contracts at the October 55 call.
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