Monday, January 12, 2009
Monday, 12 January 2009
Some option players have been placing bullish bets in Greek dry bulk carrier DryShips Inc in anticipation of firming demand for shipping capacity, according to one analyst. The Baltic Dry index, which measures shipping costs around the globe, rose for the fourth straight session and investors are taking this as a sign that underlying demand for goods may be returning, said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. The Baltic Exchange's chief sea freight index rose 6.21 percent to 872 points late on Friday, its best run-up since Dec. 17 but is down about 93 percent from the lifetime high of 11,793 it reached in May 2008.
"On one hand, we had weak employment data today while on the flip side, demand for shipping appears to be firming," Wilkinson said. "But what we have to be careful of is that global trade came to a virtual standstill in the fourth quarter.
Shares of dry bulk shippers have been hammered as the credit crisis has taken its toll on economies around the world.
The latest economic data on Friday raised investor concerns about a deepening recession while some participants reacted positively to the prospects for a pickup in shipping.
The U.S. unemployment rate surged to the highest level in nearly 16 years in December. The Labor Department said the jobless rate jumped to 7.2 percent last month, the highest since January 1993, from 6.8 percent in November.
DryShips shares rose 8.79 percent to $16.46 on the Nasdaq in late trade. The stock earlier hit a session high of $17.20.
As its shares rose, the equity's projected volatility on all of its options fell off its peak of more than 350 percent to stand at around 136 percent in afternoon trading, data from Interactive Brokers Group show.
Typically option implied volatility, a key driver of an options price, falls as uncertainty is removed from the shares.
DryShips option activity has been concentrated on the call side in expectations that its shares will gather steam into next week's January expiration.
During the session, investors had paid 85 cents for rights to secure DryShips stock at $17.50 a piece and 35 cents to reserve buying rights should shares breach $20 by this time next week, Wilkinson said.
In the February contract, investors scooped up the $25 strike calls and earlier paid 75 cents to buy 1,400 contracts compared to existing open positions of 1,255.
In all, about 48,000 calls and 23,000 puts traded in DryShips late in the session, up from its average daily volume of 48,000 contracts, according to option analytics firm Trade Alert.
As adapted from Reuters