Normally in a PO, the underwriters commit to selling portions of the stock. If they cannot sell them, then they keep what they do not sell. ALso, it is not unusual for them to purchase shares for themselves. However, this would show up on as a tick on the stock and add to the the overall volume traded that day.
I suppose it is possible that the remaining shares are being held until the market conditions improve for the stock. This is alot of shares to be concerned about considering the average daily trading volume for this stock. They will have to be very careful in selling this amount of stock. Otherwise, whey will impact the price by dropping the price of the stock which is not what they want to do. The prinicpal and underwriters will have to place the stock carefully. They do not have to place the stock in one day. However, once they announce that 8 million shares have been placed, then at that time, all of the 8 million shares have been placed.
I see that implied volitility is about 0.50. I looked at what the AUG 35 CALL option was selling at, and if I add in comissions both ways, the break even point is at about 37 which is above the resistanve at 36 to 36.5. I usually like to have a breakeven point at just below a majoe resistance. If the implied volitility was greater than 50, lets say closer to 70, then I may be able to reak even even though the stock does not break out and on its test of its high drops instead. But then the cost of the option would be greater too. So it comes down to the how close the high is to the current price of the stock. To me, the call option would be a marginal play right now.
Furthermore, the open interest is zero for this option, so this open you up to be scalped. Still, this option is selling at a discount compared to its theoretical value. This is also true with the option one more month out. So even though there has been investor enthusiasm for this stock in the past, the option players are a little less enthusiastic right now about the stock's ability to move past 35. Then again they may be wrong.
Bob Graham |
