Options Suggest Investors Are Wary Of El Paso, Quicksilver
June 26 2009 - 2:21PM
Dow Jones News
As U.S. companies gear up to report the next batch of quarterly
results, investors appear to be anticipating greater-than-average
declines from a handful of stocks.
Among the stocks that are generating nervousness among investors
are Starwood Hotels & Resorts Worldwide Inc. (HOT), El Paso
Corp. (EP), Moody's Corp. (MCO) and Quicksilver Resources Inc.
(KWK), according to analyses conducted by Goldman Sachs Group.
On the flip side, investors appear to be preparing for some
stocks to stage greater-than-average advances. Among these names
are Medarex Inc. (MEDX), Qwest Communications International Inc.
(Q), Goldcorp Inc. (GG) and Barrick Gold Corp (ABX).
Strategists determine the likelihood of future moves by
analyzing the "implied volatility" of the companies' options.
Specifically, they compare the implied volatility on put options
with the implied volatility on call options - a closely watched
measurement known as "skew."
Puts convey the right to sell a company's stock and are
considered bearish contracts. Calls, on the other hand, convey the
right to buy a company's stock and are considered bullish
contracts.
In cases where puts carry a higher implied volatility than
calls, investors have shown a willingness to pay higher prices for
those bearish contracts and are signaling nervousness over the
stock.
"Typically, people look at these screens as a gauge of fear
because if puts are more expensive, then people fear a gap move
down more than they fear a gap move up," said Goldman Sachs
derivatives strategist John Marshall.
The relationship between call and put options are constantly
changing, and so rapid increases or decreases in skew could signal
expectations for future moves.
Among the companies in which the skew has turned more bearish in
recent sessions are Wendy's/Arby's Group Inc. (WEN), JetBlue
Airways Corp. (JBLU) and General Electric Co (GE).
Meanwhile, skew has turned more bullish for Sara lee Corp.
(SLE), DIRECTV Group Inc. (DTV) and Advanced Micro Devices Inc
(AMD).
To obtain these readings, Goldman Sachs tracked changes in skew
from June 16 to June 23.
-By Tennille Tracy; Dow Jones Newswires; 212-416-2183;
tennille.tracy@dowjones.com