Unusual Options Activity (MAR 24, 2007)

Stock Tickers: DNDN, OVTI, HAL, RRI, MEDX, CHS

Unusual Options Activity is something we like reviewing as we near the end of the quarter and as we near certain events.  There were several stocks that saw highly unusual options activity Friday (March 23) and we prefer tracking options later in the week because they often give weekend insight or speculation of a weekend or imminent event.

Dendreon (DNDN) saw 21,787 APR07 $5.00 PUTS and 18,008 APR07 $5.00 CALLS. With the FDA Panel review set for next week, this one is easily explananble.  The stock rose 13% and has been the talk of the biotech traders and message boards.  It is a battleground stock with massive short sellers betting it will flop and with a huge following of traders thinking and hoping the FDA Panel backs its prostate cancer vaccine.

Reliant Energy (RRI) MAY07 $20/$20 straddle: As Reliant re-nears profitability and is back from the throws of death after the Enron collapse, it appears someone is making a bet that it either sees further stock runs or that Reliant sees a complete reversal.  The stock gapped down Friday after Bank of America cut its rating to a Sell on valuations after a 100% rise in the last year.

Halliburton (HAL) saw more than 26,000 contracts go off in the April07 $40 CALLS.  Either someone is thinking someone may try to do a deal or they are hoping for a series of sudden fortunes.  Those are about 4 weeks to maturity and had an open interest of 243,941 contracts (24 million shares leveraged).  With the tender and repurchases it is hard to know what support will be there and hard to know what is making a trader think it will go up rapidly from $31+. In fairness there was a large offset in the Puts as well, so this could quite easily be a clean up of an older trader or just a remote hedging transaction.

OmniVision (OVTI) saw quite a bit of unusual options trading interest in numerous strike prices in numerous months.  Rumors were around on every chat room, after TheStreet.cm ran a story that Eastman Kodak (EK) may be interested, and after Barron’s covered it laste in the day.

Chicos FAS (CHS) is seeing renewed CALL buying of late as the company has been looking like its recent woes have at least seen the worst and may be improving.

Medarex (MEDX) saw some unusual options activity for the May calls on initiations of its psoriasis treatment starting Phase I trials Friday (news).  Psoriasis is one of the massive potential blockbuster drugs and/or creams because the condition is widespread and depending on the severity it is very under-treated compared to many less common disorders.  But the open interest in the JAN 2008 contracts is massive because of upcoming reviews late in 2007 (contract & open interest)
$12.50 CALLS 55,390
$15.00 CALLS 36,202
$17.50 CALLS 78,288
$7.50    PUTS 12,820
$10.00    PUTS 14,960
$12.50    PUTS 36,826
$15.00    PUTS 16,261

So these are all going to be some of the issues to watch as options often show a completely unique trading pattern based around future events.

Jon C. Ogg
March 24, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.