Schaeffer's Midday Options Update Features Halliburton, KBR Inc., and Bank of America

Business Wire, Nov 16, 2006

CINCINNATI -- Today's Schaeffer's Midday Options Update features Halliburton (NYSE:HAL), KBR Inc. (NYSE:KBR), and Bank of America (NYSE:BAC). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Options Update: Open the Call Bay Doors, HAL

In early-afternoon action, the major market averages are propped slightly higher. The Dow Jones Industrial Average crossed through 12,310 earlier today to peg yet another new all-time high but has now pared its gains ever so slightly. Economic news has been sprayed across the Street again today; October's consumer price index came in below expectations, jobless numbers were tame, natural-gas inventories dropped for the first time in three weeks, and manufacturing activity in the Philadelphia region is on the upswing (for now). On the earnings front, a number of retailers are reacting negatively to their quarterly results. Men's Wearhouse (MW) and Williams-Sonoma (WSM) are both down more than five percent.

Most-Active Options Update

At 1:34 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,311.8) has added 0.47 percent, while the S&P 500 Index (SPX - 1,401.96) is up 0.39 percent at yet another new multi-year high. The Nasdaq Composite (COMP - 2,449.7) has rallied 0.28 percent. At 1:36 p.m. Eastern Time, 3,503,898 calls have changed hands compared to 2,354,648 puts, equaling a single-day put/call volume ratio of 0.67. The CBOE's equity put/call volume ratio stands at 0.73, while the ISE's ratio weighs in at 0.66.

Option Activity Follow-Up

Wednesday's "Options Update" (http://www.schaeffersresearch.com/commentary/observations.aspx?click= home&ID=17742 ) (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) reported on massive volume at the Bank of America (NYSE:BAC) December 50 put (BAC XJ). By the end of the session, 18,008 contracts had changed hands at this out-of-the-money strike, which previously held open interest of only a few hundred contracts. The vast majority of this volume took shape as a number of large block trades changed hands at a nickel per contract. This inflow of put positions took the equity's Schaeffer's put/call open interest ratio (SOIR) up to 1.05 from 0.95, driving it to the 63rd percentile (from the 43rd).

Implied volatility (IV) on this option dropped to 15.5 percent from 18.3 percent, suggesting that these positions were initiated on the sell side. Despite trading for a nickel per contract, these are fairly richly priced, relatively speaking, as the three-month historical volatility on December BAC options weighs in at 9.96 percent. In fact, there is a bit of a skew toward put positions on BAC; an at-the-money call currently holds an IV reading of 10 percent; the same at-the-money put has an IV of 15 percent.

Halliburton

Our tables of notably active calls and puts are dominated by exchange-traded funds (ETFs) today, with the iShares Russell 2000 Index Fund (IWM) taking center stage. Puffing its chest out as well, however, is oil-services heavy-hitter (and former Dick Cheney employer) Halliburton (NYSE:HAL). Its progeny KBR Inc. (NYSE:KBR) entered the big bad world of public trading today, debuting at an initial offering price of $17 (at the top end of its expected range) and quickly zooming about 24 percent higher. MarketWatch tells us that HAL raked in about $441 million by spinning off KBR shares.

For today at least, this apple seems to have fallen quite a bit from the tree, as HAL shares have dropped about 1.6 percent today. The oil-services company has been on the upswing since mid-October but is now encountering potential resistance from its 160-day moving average, a downsloping trendline in residence immediately overhead.

Panning back a bit, the 34-35 region was previously resistance on HAL in September, after which it acted as support during the first half of this year. Now breached again, this area may relish its former role of resistance. Fortifying this level is HAL's 10-month moving average, which has recently dropped into the area.

Today, options players are taking an interest in the stock's January 30 call (HAL AF). More than 25,000 contracts have changed hands on this in-the-money position, which was already among the top three strikes for call open interest in the January series. Heading into today's trading, there were nearly 70,000 open calls on this option. Several blocks of 2,500 contracts, along with one block of 5,000, have been sprinkled across the tape today. The block of 5,000 traded at 11:42 at the bid price of $3.60 per contract, making the transaction worth $1.8 million.