Here is the huge option spike.  The January 2013 $15 Call Options last traded ad $1.85 per contract, but the volume is 17,401 contracts.  The prior open interest is a mere 338 contracts.  Keep in mind that this translates to a speculative bet on 1.74 million shares on a fully leveraged basis if you count one contract as being the equivalent to 100 shares.

As far as the volume spike in the shares, we have seen over 730,000 shares traded as of 11:07 AM EST and the gain is 8.4% to $13.43.  The stock hit a low of $12.25 today and the prior 52-week range is $12.20 to $31.34.  An average day’s volume in Seabridge is only 322,000 shares.

The Yahoo! Finance description of the company is that Seabridge is a development stage company which engages in the acquisition, exploration, and development of mineral properties, primarily gold properties located in North America.

Seabridge is based in Toronto, Canada and here is its own description: “Seabridge Gold’s resource base of gold, copper and silver is one of the world’s largest. Our principal projects are located in Canada. Our objective is to grow resource and reserve ownership per share. Our risk-reducing strategy: acquire North American deposits; expand them through exploration; move them to reserves through engineering; and sell or joint venture them to established producers for mine construction and operation.”

JON C. OGG

Over the last year we have witnessed shares falling from over $30.00 to almost $16.00 before the recent recovery.  The problem is that the bad news has not ended and the turnaround has yet to even really get started.  So why is there such highly unusual options trading activity in this stock?

If you look out to the July options trading, which is now only about two months out, there is some speculative call options activity.  Either someone is under the impression that something good is about to happen on the M&A front or they are expecting business to pick up this summer for Avon.

We have seen more than 37,000 contracts trade in the JULY $22 CALLS and the open interest before today was listed as only 5,999 contracts.  As a reminder, this is worth some 3.7 million shares if you count this options activity on a fully leveraged basis.  Avon trades an average of 7.7 million shares or so each day.

Joe Kunkle of OptionsHawk.com wrote in options trader lingo, “Avon Products (AVP) with 34,900 calls trading, initial buyers on $0.85 offer and IV jumping as blocks of 10K and 24,700 come in at $1.15, opening buyers.  Calls trading with a block of 1.357M shares of stock.”

The move today is with Avon down 3% at $20.36 and its 52-week range is $16.09 to $30.63.  Shares closed at $21.57 and the stock traded as low as almost $19.50 on two days this week.

If there are any rumors out there it is not evident at all in the stock.  Still, it is always interesting when you see very unusual options trading on Fridays when the options are not just hedging transactions.

JON C. OGG

Wal-Mart’s stock almost never moves this much from start to finish in a 3-day period and the shares are approaching an oversold level.  The problem in trusting any chart at this point is that the news flow and headline risk remains greater than the odds that the headlines will suddenly become good here.

We recently noted that options trades were betting on Wal-Mart shares going down to $56.50 os so by mid-June and ultimately to $55.50 or so by mid-September. Shares were down 4.7% to $59.50 at that time, but now they are down to the $57.60 level.

If we use the December 2012 PUT OPTIONS today, the bets are still strong on the downside.  In the DEC-2012 $55.00 PUTS we have seen 2,730 contracts trade against a listed open interest of only 219 contracts.  There were also in the same month $60.00 PUTS some 5,204 contracts traded so far today against a prior open interest of only 155 contracts.  This may be a hedge or a roll, but the implication is that either Wal-Mart is headed down to $52.50 or so in December.  If the bet is not that the stock falls that far, then it is a synthetic long where an investor is willing to take delivery of shares at just under $52.50 just a few days before Christmas.

What is so interesting about the Wal-Mart news is that investors have not gone out and started rewarding rival Target Corporation (NYSE: TGT).  The king of dollar stores is Dollar General Corporation (NYSE: DG) and it and other rivals have not been amply rewarded.  Part of the blame on a negative retail sector may be on stores like Big Lots Inc. (NYSE: BIG) with its downward guidance effectively having taken shares down from $45 to $35 this week.

Maybe Wal-Mart can get saved by statutes of limitation.  Maybe it can sneak its way out of this.  Unfortunately, the negative pressure that Wal-Mart had been getting away from is back and this pressure is unlikely to go away in an instant.  The good news is that the allegations are all in the past rather than the current corporate culture, but the bad news is that the pressure here could end up toppling management at the highest levels of the world’s largest retailer.

The long and short of the matter is that U.S. companies are expected to uphold certain ethical rules and practices.  Bribes are illegal, even if companies do not get punished for the activity on the foreign soil.

The flip-side to this is that no one will really be able to address (nor really fix) the underlying issue: doing business and Mexico and in Latin America is not quite as straightforward as ‘ethics officers’ would hope.  Outright bribes, gifts, donations, and other business enhancing methods are all just a small part of the business culture once you go south of Texas, News Mexico, Arizona, and California.

JON C. OGG

A review of the stockcharts.com chart at the end of this article shows that Wal-Mart again has sharply violated its 50-day moving average after a recovery to new recent highs.  This is the second such violation in well under ninety days.  The stock continues to act as a trap.

Now take a look at the options trading.  Of course there are many call option buyers and sellers hoping that today’s news is just an over-reaction since the stock is down by 4.7% to $59.50 on three-times normal trading volume with more than two hours until the market closes.

Go out to the JUNE $57.50 PUTS with some 4,514 contracts traded against an open interest of 14,187 contracts.  The last trade was at $0.97 per contract, indicating that investors are effectively betting that the stock may go to around $56.50 or so.

Now go out to the SEPTEMBER $57.50 PUTS trading 2,259 contracts against a prior open interest of 5,187 contracts.  With a last trade of $2.07, that is a gamble that Wal-Mart will effectively fall to $55.50 or so by the time September 21, 2012 rolls around.

Of course this is using simple intrinsic value.  It is very possible that some investors are selling those puts for a theoretical long trade and some investors may just be hedging shares.  Still, some are making the bet that more downside is on the way.

It is hard to imagine that a few million dollars worth of a scandal can eat up more than $9 billion in market capitalization, but investors shoot first and will ask questions later.  If you find one roach somewhere in your house, common sense would dictate that there are other roaches elsewhere.

JON C. OGG

You can click on the chart twice to enlarge it.

The call options were active in May if you look at the open interest but it is a trade out in the JULY-2012 $40 CALLS that really starts the interest here.  There have been more than 13,000 CALLS traded in the July expiration and the prior open interest was a mere 980 contracts.  This is representative of 1.3 million shares on a fully leveraged basis.

We would note that more than 5,500 contracts have traded at the same $40-strike price in the July PUTS but there was an open interest of 11,597 before taking today’s volume into consideration.

Another odd trading alert took place with more than 5,500 of the OCTOBER-2012 $31.00 PUTS trading hands today.  The prior open interest there was only 580 contracts in those PUT options.

SanDisk shares are up 2% at $36.64 and the 52-week trading range is $32.24 to $53.46.

JON C. OGG

The last price went off at $0.96, implying that the stock would have to rise to above $8.96 before the September 21, 2012 expiration date for there to be intrinsic value in these options outside of any time value.  Currently all there is in value is the time value and the price erosion here would in theory be close to one-penny each day if this moved in a straight line.

What is interesting in the amount of call options is that this 21,731 contracts represents more than all of the open interest in the September puts and calls combined from strike prices of $1.00 to $16.00 that we could see.  That is also a larger amount of options traded than the open interest in any one of the single option strike prices in the April, May, and June expiration months.

Someone is making a big bet that SandRidge will somehow be unlocking much more value or that it will be rising with higher energy prices over the summer.

JON C. OGG

Currently shares are down 4% at $22.00 on more than 11.8 million shares.  What has been rather amazing, and perhaps amusing, is the flurry of options trading.  With the FDA extending the review period by 90 days this moves out the options trading schedule considerably.  At NOON EST we have seen more than 20,000 put options trade hands and almost 55,000 call options trade hands.  On an absolute basis, this is about 7-times the normal trading volume in the options contracts.

Options traders are now having to go all the way out to September-2012 to get the proper options exposure that will cover July.  The lion’s share of the options trading is in the Call options as well.  The options will likely soon get July and/or August expirations but the September call options data today alone exceeds what was the entire open interest for the options contracts that month.  To show how expensive the options are with five months of time value, the September 2012 $27 Calls cost $4.75 and that requires a $31.75 breakeven price if you just look at the intrinsic value upon the September 21, 2012 options expiration date.

JON C. OGG

Today’s unusual options trading was out in the January-2014 $2.50 Calls.  We have seen some 25,000 options contracts trade, which is 2.5 million shares worth of exposure on a fully leveraged basis.  This appears to be a new position as well because the open interest was 15,093 contracts before today.

The 25,000 options contracts were on the bid rather than the ask, meaning it was a sale of some sort rather than someone buying speculative calls.  Whether or not this was a hedge or just a high premium capture is hard to know, but most likely it is at least one big bet that a high-premium buyout is not coming here.  This may just mute some of the old and recent buyout rumors which we generally considered more as ”hope” than reality.

JON C. OGG

The WSJ noted in its “movers” section that it “hasn’t been able to clear the blockage in the C section of drilling at the Wilcox play in the Gulf of Mexico, so it will remove tubing and clear residual draining fluid as part of an effort to provide access to all 200 net feet of the shallow-water location.”  The problems with this well have knocked out about one-fourth of the share value in recent weeks.

The company’s press release noted. “Technical completion has been achieved successfully and work is ongoing to establish commercial production from the well.”  By the company’s count, this well will be in the commercialization stage soon.

While the stock is down 3.9% at $9.34 and while the 4.7 million shares compares to an average of almost 2.8 million shares in a day, it is the options which really stand out:

• Over 5,200 of the APRIL-2012 $10 Calls have traded against an open interest of 9.239 contracts;
• Over 1,000 of the $11 and $12 Calls in April have traded in each contract;
• Over 14,000 of the April $10 Puts have traded against an open interest of 47,634 contracts;
• Over 5,300 of the $11 April Puts have traded against an open interest of 12,704 contracts.

Trading remains elevated even out in the May-2012 options, and there have been over 10,200 of the $10 Puts due in May against a prior open interest of 5,615 contracts for that same strike and month.

After having hit a low of $8.89 earlier this morning, the 52-week trading range is $8.25 to $19.26.

JON C. OGG

What has not really captured too much attention is the activity from short sellers and put option buyers.  The short interest came out this week and it was shocking to see the growth and consistency of the short interest.  The March 15 settlement date had a year high of short shares at 7.925 million.  This was the fourth consecutive gain in the short interest and was up from 4.99 million shares short as far back as January 13.

The bets against Deckers have been evident in stock options with the largest open interest in this one being the April-2012 $65 Puts with an open interest of 7,578 contracts.

Since the CEO has not spoken much, short sellers and put buyers get to keep winning.  The stock hit a 52-week low of $61.76 today and the prior 52-week trading range was $63.04 to $118.90.

You could argue that at 12.2-times expected 2012 earnings the stock is finally cheap.  Short sellers will argue that it only looks cheap but that is a value trap because they will not be able to make their earnings targets.  Until the company says something one way or another, short sellers and put buyers may keep the pressure on here in Deckers.

JON C. OGG