Shares in Target (TGT - commentary - Cramer's Take) lost 8.3% of their value today, post-Black Friday, to read $31 heading into the noon hour, as a number of traders seemed inclined to use options to protect long stock positions.
This was done in an opening, 15,000-lot collar in the April contract, where a trader bought $22.50 puts at $3 per contract and sold $45 calls at $2.50 to balance out the cost profile a bit. This is a nice-looking trade in the current high-volatility environment, in that the trader has essentially locked in protection against a drop below $22.50 at less than 20% of the price of a long put position at that specific strike. In another 10,000-lot position that traded around the same time, and on the same exchange, a trader positioned long $32.50 calls.
Puts in 3M (MMM - commentary - Cramer's Take) are on fire today, outpacing calls by about 9 to 1 and driving implied volatility in the options up by nearly one-third as shares trend 3.7% lower at $64.42. Opening volume at more than 5 times the open interest is showing up at the December $65 strike, the at-the-money put, which at $3.80 to buy today is about 80% dearer than it was last Friday, and thus requires even deeper downside from current levels to break even. The company has scheduled a conference call for 1 p.m. next Monday, so the flurry of put interest may be correlated to that event.
Finally, recapping the implied volatility movements in broader stocks today, a near-400-point setback for the Dow as the month of December swept in a return of economic woes brought implied volatility in major financial companies. These included Morgan Stanley (MS - commentary - Cramer's Take) (ahead of a key vote on its acquisition by Bank of America (BAC - commentary - Cramer's Take)), where implied volatility rose more than 28%. Wells Fargo (WFC - commentary - Cramer's Take) volatility rose 27%, while Merrill Lynch (MER - commentary - Cramer's Take) rose more than 26%, and JPMorgan (JPM - commentary - Cramer's Take) implied volatility rose nearly 25%.
P.S. Will you be there when Cramer makes his next move?
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Options Ratio Call Spread Play in Zimmer 11/25/2008 11:29 AM EST And traders go long calls in ITT Educational Services on this light-volume day.
At the time of publication, Darst had no positions in the stocks mentioned.
Rebecca Engmann Darst is the Portfolio Manager for TheStreet.com?s Options Alerts Portfolio newsletter and an equity options analyst for RealMoney Each Thursday at 6:30 a.m. EST, she delivers the early-morning lowdown on option volume and sector trends on CNBC's "Squawk Box."
Prior to her work in the equity options market, she spent seven years in Scandinavia as a Copenhagen-based chief reporter for a European Commission news service, correspondent for Spanish daily El Mundo and Radio Netherlands, followed by stints at Nordea Bank and Saxo Bank.
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