What are Garmin options telling us?
I don’t usually track options closely, but the volume in Garmin (GRMN) calls caught my eye this afternoon. The December 35 and 40 and January 17.50 through 35 calls had volume 10x the prior open interest today.
The December 40’s did 25492 contracts at roughly 8.75, while the January 35’s did 17699 contracts at roughly 13.75. Yesterday there were only 2557 Dec 40 and 2523 Jan 35 contracts open. There’s comparatively little volume in the December/January put contracts.
This is around $46 million for these two strikes alone, and unusual new contracts volume in the other strikes today represent nearly $100 million, so it’s not likely to be a bunch of retail investors on OptionsExpress.
A few possible explanations:
1. Someone thinks GRMN is going up a lot between now and January (perhaps anticipating a good holiday season and/or announcements at CES in January?) and purchased a lot of calls.
2. Someone thinks GRMN is going down a lot between now and January and sold a lot of calls to effectively go short and also collect the time premium.
3. Someone holds a lot of GRMN shares and wants to lock in returns for the end of the year by selling covered calls. The shares are up around 45% for the year, someone’s bonus may depend on keeping the gains through December, and the past couple of days could easily raise some concern.
GRMN has been a favorite among short sellers and traders all year and goes on and off the Reg SHO (naked short) list regularly. It often trades erratically and often shows unusual affinity for strike prices at options expiration, which makes it worthwhile for Garmin investors to keep an eye on the options. Today’s volume in Dec 40 and Jan 35s alone correpond to 4.3M shares which the option counterparty will probably be wanting to hedge, compared with today’s relatively light volume of 1.6M shares.
Along these lines, there’s an interesting research paper on options volume versus future stock prices.
Nothing directly actionable here, but worth keeping an eye on.
Disclosure: currently long GRMN.
Update 11-29-2006 10:41PDT - Tuesday’s high volume in Dec 40s and Jan 35s is not showing up in the overnight update of open interest, so it looks like the trade was closed out yesterday.
Tags: garmin, grmn, options, stock, markets, trading, finance
