By Jud Pyle, CFA, chief investment strategist for the Options News Network
Investors looking to buy
Jan. 55 calls have ample supply on their hands after one call-seller boosted volume this morning.
Looking at the Jan. 55 call options, one customer sold 5,000 contracts at $1.00 per contract in the first two hours of trading today when stock was trading at $33.49. This computes to an implied volatility of 32.4. Implied volatility of these calls is roughly unchanged as of last night's close. The current open interest of these calls is 108, indicating that today's volume is likely to translate as new open interest.
What's interesting about this call activity is at least one investor is betting that MDT shares will not rise above $55.00 by January 2011. MDT shares have not closed above $55.00 since Aug. 20. On Friday, Minneapolis-based MDT announced plans to add 1,400 jobs in its new diabetes center in San Antonio. Outside of that headline, there is little news on the stock.
These calls are 64% out-of-the-money, but the stock has been climbing slowly since hitting a 52-week low of $24.38 on March 9. MDT stock has been rallying along with the market, but also has been aided by positive comments out of Washington last week that a bipartisan approach to health care reform may be in the offing. The stock rallied about 3% last week, but closed down 61 cents Monday.
Big call-selling activity such as this does not mean investors should run out and sell their shares. But it's noteworthy that at least one investor is taking a somewhat bearish stance in MDT to protect some of the gains the stock has achieved since the beginning of March. The customer also might be making a bet that a big rally is unlikely for MDT over the next year.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."