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Call Trading Shoots Higher on CA Inc. (CA)

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 9:33:56 AM

After the close on Wednesday, CA Inc. (CA) said it would pay $350 million in cash to acquire privately held Nimsoft Inc. The deal, expected to close by the end of the month, brings CA greater expertise in monitoring how information technology is performing for its clients. The acquisition underscores the business software maker's efforts to expand its sales with smaller and mid-sized companies and buttress its cloud-computing products.

"With our planned acquisition of Nimsoft, CA will be equipped to capture several important growth market segments," Chris O'Malley, who runs CA's cloud-computing services, said in a press release. "Penetration of these markets will further expand our global leadership in IT management and complement our existing strength with large enterprise customers."

Ahead of the announcement, the stock has seen a jump in call trading. During the past 10 trading sessions, the International Securities Exchange has seen nearly 22 calls purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 91% of all those taken during the past year, pointing to a growing optimism.

However, the Schaeffer's put/call open interest ratio comes in at 0.77, which is higher than 60% of all those taken during the past year. This high ratio indicates that there were is still ample room for optimism to grow toward the shares before it reaches extreme levels.

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Pessimism Blankets United Technologies Corp. (UTX) as Traders Load Up on Puts

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 9:13:44 AM

United Technologies Corp. (UTX) announced after the close on Wednesday that its board authorized buying back up to 60 million shares of the company's common stock. The program, worth up to $4.3 billion at current prices, replaces a previous one that was near completion. United Technologies bought back about $1.1 billion in shares in 2009, and expects to buy back about $1.5 billion in 2010.

Overall, options players remain extremely skeptical of the shares. The Schaeffer's put/call open interest ratio rests at 1.17, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio is also higher than 87% of all those taken during the past year, indicating that short-term options speculators have been more pessimistically aligned toward the shares only 13% of the time.

The International Securities Exchange has also seen an increase in put trading. During the past 10 trading sessions, 1.75 puts have been purchased to open for every one call purchased to open. This ratio is higher than 87% of all those taken during the past year, pointing to a growing skepticism.

On the other hand, Wall Street is still enamored of the company. According to Zacks, 15 of the 20 analysts following UTX rate it a "strong buy." This configuration leaves ample room for potential downgrades, which could weigh on the shares.

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Call Trading Jumps on Gymboree Corp. (GYMB) Ahead of Earnings

Jocelynn Drake (jdrake@sir-inc.com)

3/11/2010 9:01:24 AM

After the close on Wednesday, Gymboree Corp. (GYMB) announced that its fourth-quarter profit rose to $33.2 million, or $1.11 a share, from $29.5 million, or $1 a share, in the year-ago period. Analysts estimated a quarterly profit of $1.10 a share on a 4% sales rise to $300 million. Revenue rose to $299.6 million from $288.7 million a year ago.

Looking ahead to the first quarter, the retailer forecast earnings to be in the range of 90 cents to 94 cents a share the first quarter.

Heading into the earnings report, options players showed a preference for calls on GYMB. The International Securities Exchange (ISE) reported that 1.8 calls were purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 72% of all those taken during the past year. In addition, the ISE/Chicago Board Options Exchange 50-day call/put volume ratio comes in at 2.42, which is higher than 80% of all those taken during the past 12 months.

Meanwhile, Wall Street is smitten with the shares. According to Zacks, the stock has earned eight "strong buy" ratings and just three "holds.

Technically speaking, GYMB is up more than 6% since the beginning of the year and is poised to gap higher on the open. Furthermore, the equity has been in a strong uptrend along its 10-day moving average since early February.

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Puts Mount on KB Home

Sarah Wasserman (swasserman@sir-inc.com)

3/10/2010 3:44:32 PM

KB Home (KBH) has seen a surplus of option activity today, with put volume skyrocketing to five times the construction concern's norm. Over 8,100 puts have traded today, well above KBH's average put volume of 1,393.

Drilling down on specific trades, it appears one option player is responsible for the bulk of today's put volume. This morning, a block of 7,780 April 16 puts crossed the tape closer to the ask price, suggesting they were bought. With open interest at this strike currently at 6,029, it's clear we'll see freshly added positions tomorrow. At present, the April 16-strike is home to peak put open interest for the back-month series.

Today's preference for puts is in line with recent activity on KBH. In the past two weeks, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have racked up a put/call volume ratio of 2.04, meaning that puts bought to open have more than doubled calls bought to open during that time frame. This ratio ranks in the 83rd percentile of its annual trading range, implying that speculators have rarely shown greater appetite for puts on KBH.

In the past month, short interest on KBH has plummeted 10.5%. Despite this sharp decrease, these bearish bets still account for nearly 17% of the equity's total available float.

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Kinetic Concepts Inc. Calls Popular Following Favorable Patent Ruling

Joseph Hargett (jhargett@sir-inc.com)

3/10/2010 3:27:36 PM

Kinetic Concepts Inc. (KCI) has drawn considerable options activity today, with volume soaring to more than 13 times the equity's daily average. Calls have attracted the most attention, as more than 26,000 contracts have traded, accelerating to some 15 times KCI's average daily call volume. The most popular on the session is the April 55 strike, where 3,700 calls have changed hands on no open interest. Another 3,300 contracts traded on KCI's April 45 call, while some 1,500 calls traded on the April 50 strike.

Prompting the wellspring of call volume, KCI shares have rocketed more than 14% higher today, after the company announced that it won a patent dispute court battle with Smith & Nephew. KCI's volatility had spiked ahead of the ruling, as its Schaeffer's Volatility Index (SVI) of 71% rests at a six-month high. For comparison, the stock's one-month historical volatility arrives at just 18.51%.

With the ruling out of the way, we could see KCI's implieds come back to earth, potentially sending options prices lower. This could be a pain for option buyers, but option sellers banking on declines in volatility may have improved odds as a result.

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Commentary by WhatsTrading.com

Valero Energy (VLO) $20.55 +5.23%

3/10/2010 3:19:57 PM

Oil refiner Valero (VLO) is up $1 to $20.53 and options trading is brisk Wednesday, with 33,000 calls and 19,000 puts on the tape so far. The gains in the shares and the heightened options activity comes the day after Reuters reported that PBF Investments might be interested in buying VLO's Paulsboro refinery in New Jersey. Shares are now not far from session highs and the options action is really scattered: March 20 calls, March 20 puts, Sep 23 calls, Sep 25 calls, April 21 calls, Mar 19 calls, Jan11 20 puts, Mar 21 calls, June 18 calls. Meanwhile, implied volatility is up about 2.5 percent to 32.

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CBOE Volatility Index (.VIX) $18.23 +1.73%

3/10/2010 2:19:57 PM

CBOE Volatility Index (.VIX) is up .29 to 18.21 and looking to extend this week's winning streak. After falling during 17 of 18 trading sessions, VIX is up 4.5 percent since Friday and might be seeing some strength due to upcoming expirations -- VIX options a week from today and then the "Quadruple Witch" next Friday. In the options, noteworthy trades in the VIX today include two large blocks totaling 80K May 35 calls on the bid of 45 and 50 cents per contract. These blocks printed in morning action and, since it looks opening, might reflect expecations that VIX is unlikely to make a signficant move higher by the VIX May expiration (69 days.)

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Kinetic Concepts Inc (KCI) $43.99 +1.57%

3/10/2010 1:00:01 PM

Kinetic Concepts (KCI) is halted, news pending ahead of a trial verdict against Smith and Nephew. Shares are up 68 cents to $43.99 and options were active ahead of the halt, with 16K puts and 7500 calls traded. The top trades: 4700 and 4600 March 40 puts on the bid, 75 cents per contract. Looks like put sellers. Another player sold 1750 Mar 50 calls at an average of 37.5 cents. Implied volatility is up about 6 percent to 78.

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Microsoft Corp (MSFT) $29.02 +0.76%

3/10/2010 12:19:57 PM

The top equity options trade so far today is a block of 38K January 35 calls on Microsoft (MSFT). It was bought at 52 cents per contract and not tied to stock, according to a source on the floor. It might close an existing position, as open interest is 77.7K.

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Norfolk Southern (NSC) $53.74 +0.0%

3/10/2010 10:19:58 AM

Norfolk Southern (NSC) is often considered the best managed rail company, but the stock is not at 52 week highs like it's counterparts Union Pacific (UNP) and Kansas City Southern (KSU). That could change with a break of $55, which would target a move to $60. Option traders were decisively bullish Tuesday, with 4,425 calls trading, 3X average, and 90% offer side buys. The April and June $55 calls both saw buyers, with 2,800 in April $55's changed hands. Shares trade 13.2X earnings and 18X cash value, and recently were raised to Overweight at Barclays with a $62 target. Recent improvements in pricing, shipping volumes, and improved outlook for coal were cited as reasons for the upgrade.

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Daily Rundown, March 10

3/10/2010 8:59:58 AM

Early indications point to a steady open on a slow news day and very quiet trading across international financial markets Wednesday. About an hour before the opening bell on Wall Street, stock index futures hint at modest early gains for both the Dow Jones Industrial Average and the NASDAQ.\n
\nStock benchmarks saw narrow trading overseas. Japans Nikkei finished down .04 percent and Hong Kongs Hang Seng was unchanged. In Europe, Frances CAC 40 Index is up .3 percent, Germanys DAX up .2 percent, and UKs FTSE is flat.\n
\nIn the US, the focus turns to the only economic stat of the day at 10:00 a.m. eastern time. A report on wholesale inventories is expected to show an uptick of .2 percent for January.\n
\nWith no other news to guide the action, bonds are drifting in aimless trade. The benchmark ten-year Treasury is down 2/32nd and now yields 3.71 percent.\n
\nThe dollar added .49 to 90.43 against the yen. The euro gained .0004 to 1.3602 against the buck. \n
\nCrude oil added .25 cents to $81.74 a barrel and gold rose $2.1 to $1124.40 an ounce.\n
\nAmong the stocks to watch, Intermune (ITMN) launched 64.5 percent higher after an FDA panel voted to approve the companys pirfenidone. Factset (FACT) jumped 66 percent after Abbott (ABT) made a $27 cash bid for the company. American Eagle (AEO) rose 5 percent on better-than-expected earnings. Navistar (NAV) lost 7 percent after reporting a quarterly profit of 23 cents per share, which fell well short of analyst estimates of 85 cents. Retailers will be in focus after the closing bell with a number of second tier names -- Hot Topic (HOTT), Mens Wearhouse (MW), Jo-Ann Stores (JAS) -- slated to release results. \n

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Unusual Activity Roundup, Mar 9

3/9/2010 4:00:01 PM

Some less actively traded names seeing bullish order flow: Exact Sciences (EXAS), Beazer Homes (BZH), BJs Wholesale (BJ) Bearish order flow: Maiden Holding (MHLD), PDL Biopharma (PDLI), Potlatch Holding (PCH) Post Earnings: Kroger (KR), Force Protection (FRPT) Pre-Earnings: Navistar (NAV) , J Crew (JCG) Ex-div.: Allstate (ALL), Wal-mart (WMT), Smith International (SII), ADP

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Citigroup Inc (C) $3.81 +7.02%

3/9/2010 1:20:01 PM

Citi (C) calls are seeing heavy trading as shares gain 22 cents to $3.78, session highs and their best levels of 2010. 165.6K April 4 calls traded (37% Mid / 52% Ask), 138.5K Mar 4 calls (78% Ask), and 54.8K Jun 4 calls traded (27% Mid / 55% Ask). An impressive 581K Citi calls traded so far and trading is still brisk. Implied volatility is down about 2.5 percent to 49. The bullish flow comes amid mixed action in the financials Monday, but seems to reflect some optimism that the worst might be over for Citi shareholders.

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AirTran Holdings Inc (AAI) $5.22 +5.24%

3/9/2010 12:20:00 PM

Airtran (AAI) is up 29 cents to $5.25 amid relative strength in the airline sector Tuesday. Reuters reports that demand for air travel among business customers is picking up. According to UAL CFO Kathryn Mikells, "We're clearing seeing signs of economic recovery and premium and corporate travelers returning." The Arca Airline Index (.XAL) is up 2.4 percent with help from the 5.8 percent gain in AAI. Meanwhile, AAI call options are seeing action, with 2130 traded, or about 7X the normal for the first two hours of trading. Mar, April, and Oct $5 calls are seeing the bulk of the flow.

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Cisco Systems Inc (CSCO) $26.20 +0.27%

3/9/2010 11:00:03 AM

Cisco Systems (CSCO) calls are seeing active trading ahead of the company's 8:00 a.m. PT web cast. The networking company is expected to make a major product announcement, which might be new technology for wireless carriers. Shares are up 3 cents to $26.16 and 64K calls traded (28K puts). The total volume represents 7X the typical activity for the first hour of trading. March 26, March 27, and April 27 calls are the most actives. Implied volatility is up about 3.5 percent to 26, as players jockey for position ahead of the news.

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More Options Commentaries and Observations by Schaeffer�s

Early Edge: China Sunergy, EnergySolutions, Goldman Sachs Group, and Clean Energy Fuels

Today's column includes a disappointing quarterly report from China Sunergy Co., Ltd. (CSUN), a major new contract for EnergySolutions, Inc. (ES), a bullish note for Goldman Sachs Group, Inc. (GS), and a slimmer-than-expected quarterly loss from Clean Energy Fuels Corp. (CLNE). Each day, Early 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.

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Opening View: Dow, SPX 2010 Highs Remain Elusive

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Market Recap: Stocks Post Modest Gains as Financials, Tech Sector Pave the Path Higher

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Bearish Speculation Surges on LDK Solar Co., Ltd.

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