Today's column includes a challenging CEO search at Bank of America Corporation (BAC), a bullish note for Starbucks Corporation (SBUX), an asset sale for First Solar, Inc. (FSLR), and a troubling development for Blockbuster Inc. (BBI). 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.
Bank of America Corporation
A report yesterday on Bloomberg's Web site indicates that Bank of America Corporation (BAC: sentiment, chart, options) may drag its search for a new CEO into 2010, if board members are unable to decide on a suitable candidate by their initial target date of Nov. 26. Despite the tough job market, B of A's board has been rebuffed by at least four potential successors to current CEO Kenneth Lewis, including US Bancorp (USB) CEO Richard Davis and Citigroup (C) director Michael O'Neill.
The Bloomberg report jibes with a Wall Street Journal article on Friday, which indicated that Lewis might remain at his post beyond his planned retirement date of Dec. 31 if need be. The idea of hiring an interim chief executive to fill the gap has also been considered, according to Dow Jones.
Despite a relative lack of direction at the company's helm, BAC is fractionally higher ahead of the opening bell amid a jump in U.S. stock futures. However, the security's gains will likely be rebuffed by newfound resistance at its 10-week moving average, which hasn't been toppled on a weekly closing basis since mid-October.
Judging by the stock's front-month open interest configuration, many speculators are betting on BAC to plummet during the short term. Peak put open interest of 102,368 contracts can be found at the out-of-the-money December 14 strike, which is out of the money by more than two points.
Starbucks Corporation
Starbucks Corporation (SBUX: sentiment, chart, options) garnered an upgrade this morning, with Jefferies & Co. raising its rating from "hold" to "buy." "With the dust now settled on the 3Q earnings season, Starbucks has clearly separated itself as the restaurant company with the greatest top and bottom line momentum heading into 2010," wrote the brokerage firm in a note to clients. "While admittedly late on the upgrade, we believe the likelihood of material EPS upside in 2010 leaves plenty of room for the shares to run."
SBUX is up 2.3% in electronic trading, extending its impressive year-to-date gain of 126.3%. The security is perched atop support from its 10-week moving average, and it's currently within striking distance of its 52-week high of $22.07.
Option players seem concerned that SBUX might have run too far, too fast, as evidenced by a growing preference for bearish bets. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 1.17 puts for every call on the coffee concern. This ratio ranks in the 72nd annual percentile, revealing a stronger-than-usual bias toward pessimistic positions.
First Solar, Inc.
First Solar, Inc. (FSLR: sentiment, chart, options) announced this morning that it will sell a major Southern California solar energy plant to NRG Energy (NRG) for an undisclosed sum. The facility, which is still under construction, is set to be California's largest photovoltaic solar generation plant. It's expected to generate upwards of 45,000 megawatt-hours of electricity each year. Under the terms of the deal, FSLR will provide operations and maintenance services at the site.
FSLR is up more than 2% ahead of the open, but the shares aren't faring too well on the charts. The stock is off more than 12% in 2009, and it's currently facing stubborn pressure from its 20-day moving average. This trendline has smacked the shares lower since late October.
Unfortunately, the equity's struggles could be compounded by the presence of heavy overhead call open interest in the front-month series. FSLR's December 125 strike has 5,205 out-of-the-money calls in residence, and the stock's December 130 strike is home to peak call open interest of 5,404 contracts.
Blockbuster Inc.
Blockbuster Inc. (BBI: sentiment, chart, options) was notified late on Friday that it's out of compliance with New York Stock Exchange (NYSE) listing standards. The security is in breach of NYSE's regulation that it must maintain an average closing price of at least $1 per share over a 30-day trading period. As an initial step toward improving its liquidity, BBI said it will combine its Class A and Class B common stock into a single class of common shares.
BBI has ticked lower to 69 cents per share in pre-market activity, adding to its year-to-date deficit of 41.3%. Since Sept. 21, the stock has been guided consistently lower by unflinching resistance from its 10-day and 20-day moving averages.
With no option strikes available south of 2.50, option players are paying very little attention to the beleaguered video-rental chain. In fact, there's exactly one contract in open interest in BBI's newly front-month December series -- a single put at the 2.50 strike.
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