Stocks quoted in this article:
Ahead of Thursday's extraordinary shareholder meeting, when Dell Inc. (NASDAQ:DELL) will announce the voting results for a $24.9 billion, $13.75-per-share buyout bid from company founder Michael Dell and Silver Lake Management LLC, the computer maker is experiencing a significant upsurge in its daily trading volume. Most of the action can be traced to the put side, where 34,000 contracts have been swapped -- more than 14 times the usual. Most of this is driven by a single strike -- namely, DELL's November 13 put, where nearly 30,700 contracts have traded.
Digging deeper, it appears that the majority of the volume at that strike traded in two colossal blocks. Specifically, lots of 20,000 and 10,000 contracts crossed at their respective ask prices of $0.06 and $0.05 earlier this afternoon. Open interest at the strike is roughly 15,000 contracts, so the transactions were likely of the buy-to-open variety. In other words, the put buyers bet Dell will dip from its current post of $13.86, beyond the respective breakeven points of $12.94 and $12.95 -- that is, the single strike price, less the two different net debits -- by options expiration. If the shares remain above $13, however, the most the traders can forfeit is their initial cash outlay.
It should be noted -- especially given Dell Inc.'s (NASDAQ:DELL) year-to-date gain of over 36%, and the potential for fallout, should the buyout bid fail -- that the two put buyers may actually be seeking downside protection. In other words, they may be long-term shareholders who have profited off of the company's 2013 performance, but who want to lock in a minimum selling price in case the shares take an unexpected tumble.
Whether the puts were speculative or protective, what's for certain is they were purchased at a relative bargain. The stock's Schaeffer's Volatility Index (SVI) of 8% sits at the bottom of its annual range, meaning short-term DELL options are attractively priced right now. Likewise, the stock's 30-day, in-the-money implied volatility reading hit a 52-week low earlier today.
Option Briefs offer a concise look at the recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysisģ
perspective, please visit our Trading Floor Blog section.