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Rio Tinto (RTP) made a rare climb into the top spot for unusual option contract activity via a scan for high implied volatility breakouts. News of Aussie miner BHP Billiton (BHP) walking away from its $68.0B hostile bid due to falling commodity prices and “a deepening economic crisis”, sent shares reeling by 27.33% to levels last seen back in 2004.

On the session the metals concern saw more than 3,600 calls and puts change hand versus an average tally just south of 500. ATM front month implieds jumped about 17 points from 111% to 128% on the demand driven paper. However and more importantly, despite even today’s decent contract count, liquidity remains mostly unsuitable.

In second position, NASDAQ 100 component and business goods retailer, Staples (SPLS) saw nearly 40,000 contracts trade relative to its 4,800 average. Shares were downgraded by Friedman Billings to “Underperform” with its target price reduced to $13.50. Analysts lowered their 2009 EPS 19 cents below consensus views to $1.32 citing poor data points for hardline retailers.

Much like the broader market, shares of SPLS bounced around but ultimately settled just fractionally lower. More deliberate in their action, option traders did manage to spike implieds nine points higher near 94% in December and back towards last week’s historic highs. Most influential in that move were the front month 17.50 puts. Nearly 11,500 traded on the session before closing at 1.85.

The second “real” most active option in Staples were the March 17.50 calls. Priced at 3.10 per contract on 85% IV and shares at 17.13, the buy write yields 20.25% in 115 days before maxing out on the upside at 20.60. At the same time, one’s cost basis is reduced to 14.03, excluding carrying cost and for all intents and purposes—matches up with the double bottom low just confirmed.

A rather quiet day in shares of biotech concern Biogen Idec (BIIB) didn’t prevent the options from entering our list in the fourth spot in Tuesday’s session. Nearly 26,000 contracts traded versus a typical 4,200. There doesn’t appear to be any news catalysts behind the action. Technically speaking and like more than a few issues out there, shares are attempting to move higher off a lower low basing pattern.

Figure 1: Biogen Idec (BIIB) Implieds

Interestingly enough, the bulk of the options activity was in January. Earnings are slated for early February, but as a biotech company, there’s always the possibility of a drug-related catalyst. Further, back in 2007, the company was a takeover candidate. So, does somebody know something?

In saying that, maybe the speculative action is really “all about nothing.” While the name popped up under the guise of higher implieds, the net contract activity of about 22,000 in January, did in fact, find premiums slightly lower on the session. The takeaway of course is the net action likely saw the initiating parties selling premium—with an emphasis on the calls by a 2.5 to 1.0 margin.

On a theoretical basis, January premium looks very much in-line with fair value versus its 10, 20 and 100 statistical volatility. Eyeballing the historical implied chart shown above and you could say traders continue to anticipate more of the same ol’, same ol’ heightened volatility. Personally speaking, I’m more inclined to be “Obamaistic” about other market conditions in the weeks that lay ahead.

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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