Merger Monday 08-30-2010

Cusick’s Corner
Why is there all this merger talk? Cash -- these large caps are sitting on cash and they have to spend it either on a competitor or buy a struggling best of breed in a segment that may strengthen position in that market space or balance sheet. A great example of this is Intel’s (INTC) bid for Infineon’s wireless business to help diversify their chip business, allowing them to compete more effectively with the Ciscos and Apples of the world. Also keep an eye on the Storage space for potentially more activity, especially with Dell still on the prowl. Market watchers seem to be eyeing CML and BRCD -- but always make sure that you trade with a plan and define the risk in any trade that you are contemplating. See you After Hours.

Stocks are broadly lower, as investors brace for a busy week of economic news. It started with a report on personal incomes and spending, which showed incomes up .2 percent and spending increasing by .4 percent for July. The spending numbers were a bit better than expected, but the major averages failed to react positively to the news. Now, the tone of trading is cautious ahead of key data throughout the remainder of the week. The calendar includes housing, manufacturing, consumer confidence numbers, and FOMC minutes tomorrow. Monthly jobs data could rattle the market Wednesday and Friday. Many players are in wait-and-see mode or away on vacation. Consequently, volume is light and Dow Jones Industrial Average is off 65 points. The NASDAQ lost 15.5. The CBOE Volatility Index (.VIX) is up 1.79 to 26.24. About 2.1 million calls and 1.8 million puts traded through 12:00 ET.

Bullish
Genyzme (GENZ) shares added $2.50 to $70.12 after the biotech officially rejected Sanofi’s $69 per share bid. Genzyme says the offer undervalues the company. Shares are up and now some players are hoping Sanofi might up its offering price. 47,000 calls and 22,000 puts traded in the name through midday. September 70 and 72.5 calls are the most actives, with 11,000 traded on both contracts (22,000 total). Some players are buying the spread, and probably hoping for a revised offer north of $72.50.

AMR options are actively traded. Shares are up 19 cents to $6.23 and 28,000 call options traded through midday. The volume is 7X the normal and compares to less than 900 puts. Players are active in the September 7 calls, where 16,500 contracts have traded and 57 percent traded at the Ask, indicating buying interest. September 6, October 6, and October 7 call options are actively traded as well. Unconfirmed takeover chatter is driving the heavy call volume.

Bearish
The top equity options trades are in Citigroup (C) through midday Monday. Shares of the financial services giant are down a nickel to $3.72 and one strategist initiates a bearish play in the January 2012 contacts, buying 15,500 January 2.5 puts and selling 15,500 January 7.5 calls. This “risk-reversal” was tied to a position in Citi and not necessarily a straight bearish bet. Nevertheless, it seems to reflect underlying concerns about the outlook for the stock through the rest of this year and 2011.

Analog Devices (ADI) is seeing increasing put volume. Shares are down 44 cents to $28.78 and the top options trade in the chipmaker is a block of 1,216 October 29 puts at $1.45 on ISE. It was an opening customer buyer, according to ISEE sentiment data. 3,100 have now traded through midday. The bearish trading comes a couple of days after a revenue warning from Intel, the world’s largest chipmaker, last Thursday.

Unusual Volume Movers
AK Steel (AKS) options volume is running 2.5X the usual, with 27,000 contracts traded and call volume accounting for about 77 percent of the activity.

3Par (PAR) options activity is running 2.5X the usual, with 42,000 contracts traded and call volume representing 83 percent of the volume.
IShares Japan Fund (EWJ) options volume is running 4X the usual, with 20,000 traded and put volume representing 50 percent of the activity.

Unusual volume is also being seen in Delta Airlines (DAL), Centurytel (CTL), and Campbell’s (CPB).

Implied Volatility Movers
The CBOE Volatility Index (.VIX) is running higher, as investors brace for a busy week of economic news. The S&P 500 Index (.SPX) is down 6 points and VIX, which tracks the expected volatility priced into SPX options, is up 1.73 to 26.18. Volume in VIX options is light, however, with only 35,000 calls and 31,000 puts traded through midday, or 61 percent the typical volume.