Most-Active Options Update: Research in Motion (RIMM) Call Sellers Ahead of Earnings

ONN’s "Lucky 13" is our daily listing of 13 equities with the heaviest daily option volume (based on a 20-trading-day rolling average).

Tuesday’s Notable Option Activity–

Research in Motion Limited (RIMM):

Volatility has been on the move on RIMM during the past month as investors await the tech firm’s earnings on Thursday evening. In the last month, the at-the-money implied volatility has surged from about 41% to about 59%. Currently, the at-the-money, front-month straddle is trading at about 12.5% over strike. Volatility is likely to come in after the earnings hit the Street tomorrow night.

In Tuesday’s session, the stock gained 70 cents to $84.86. On the options front, the out-of-the-money November 120 call was in focus, as more than 7,300 contracts crossed the tape, nearly all of which translated as new open interest. Our floor sources indicate that these positions were likely sold to open. The call fell two cents on Tuesday despite an increase in the stock, which is also indicative of sellers. These may be covered call positions to protect existing holdings. Tune in to this morning’s Options News for Kevin Cook’s further analysis of RIMM shares.

American International Group (AIG):

Following a report in the Wall Street Journal suggesting that the company has stabilized somewhat, AIG shares experienced a big intraday reversal yesterday. The stock traded in a one-day range of $45.55 to $54.40 and closed near its intraday low, down $2.68 at $45.80. Apparently, the $50 level was tough for the equity to handle.

Despite this see-saw session, volatility managed to come in slightly on the stock; the front-month, at-the-money straddle is now 27.4% over strike, down from 30.6% at Monday’s close. This morning we saw modest increases in open interest at the October 55 and 60 call strikes; this volume was likely initiated by sellers given the movement in the options pricing yesterday. Again, investors who already own the stock (or who are purchasing it) may be selling upside calls.

Apple (AAPL):

Apple shares continued along their uptrend, rising 46 cents on Tuesday to $184.48. Today, the U.S. Financial Accounting Standards Board will be voting on an accounting rule change. This change could significantly impact how Apple reports iPhone revenue and profits (due to the money it collects from subscriptions).

The November 160 put was active yesterday, with 7,300 contracts changing hands. Open interest rose to 6,270 from 340, as the lion’s share of these contracts translated. Although the stock was up just 46 cents, the puts were down 33 cents (more than they should have been with a delta of 17). This suggests that these options were sold to open.

The November 160 put, out-of-the-money by $24 or 13%, was bid at $3.00 yesterday, allowing these put sellers to collect a decent premium with about two months to wait out the trade. If AAPL closes above $160 at November expiration, the investor retains this premium. If it closes below, he has the option of purchasing AAPL shares at $160 (or effectively $157 when taking premium into account).

Intel (INTC):

Some investors sold to close their Intel calls yesterday as the stock inched down one cent to $19.53. During the session, more than 19,000 October 22 calls traded, resulting in a similarly significant drop in open interest. These out-of-the-money options expire in less than four weeks.

The ONN Lucky Thirteen: The 13 stocks with the heaviest option volume during the past 20 days.

1. Citigroup Inc. (C)
2. General Electric Co. (GE)
3. Bank of America Corp. (BAC)
4. American International Group, Inc. (AIG)
5. Apple Inc. (AAPL)
6. Wells Fargo & Co. (WFC)
7. JPMorgan Chase & Co. (JPM)
8. Las Vegas Sands (LVS)
9. Microsoft Corp. (MSFT)
10. Freeport-McMoRan Copper & Gold Inc. (FCX)
11. Research in Motion Ltd. (RIMM)
12. Caterpillar (CAT)
13. Intel (INTC)