May 17, 2010 at 16:32 PM EDT
Trash-Talk or the Real Deal – Pactiv Call Options Higher on Apollo Rumor
Today’s tickers: PTV, F, ODP & VIX PTV - Pactiv – Hard to know whether there is any substance behind the Wall Street Journal’s story that the maker of Hefty refuse sacks is in deal talks with Apollo Global Management or whether it’s just trash-talk. But investors have got the deal-bit between their teeth and have already pushed shares higher by 18% to $28.27 but not before they were earlier propelled to $29.41. The WSJ says a deal maybe struck between $34-$38, which helps explain the appeal of call options at the $30 strike price at expirations from May through August. The uncertainty of the news sent implied volatility surging from 32% to 58%, while volume today has completely eclipsed the number of existing option contracts held on the stock. There is also interest in the June $25 strike puts but it’s hard to state that investors are cashing in here in the event the bulls are right. Premiums at that destination fast-eroded over the weekend to 65 cents losing more than half their value. F - Ford Motor Company – Naturally the broader U.S. market took a blow to the gut on account of heightened fears for European recovery. Ford’s April sales took a 17% nosedive on the continent at the very moment that its European incentive plan came to an end and competitors were able to creep in and find a way to better serve customers. But the domestic U.S. recovery seems to be more important to some investors as the auto industry recovers from a dip to annualized sales volume of 10.4 million to 11 million. While demand was sparked by incentives, the experience of GM in its welcome return to profitability today shows optimistic trends for the broader industry. Most important of all is the reduced reliance on incentives results in higher prices at dealerships. The industry has also gone through severe cost-cutting programs, which may be staring to play out as it escapes the bankruptcy days. Although Ford’s share price is weaker today at $11.78 option investors seem to have a passion for both May and June expiration call options at the $13.00 strike price where early volume of 10,000 and 5,000 contracts was evident. The May premium of seven cents is an inexpensive way of playing the rebound while a 34 cent cost at the June expiration would require a 13.2% share price gain through expiration. Investors also…
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