Monday Options Update: C, MYGN, TSN, LLTC, F, GM, BEC, RNWK

June 30, 2008

Citigroup (C) –Traders continue to nettle Citi stock with another 3% decline to $16.72. Over the weekend it was announced that Citi is overhauling its bonus system for senior management, making executive payouts contingent upon bank results rather than the profits of their own division. While some observers have applauded the measure for incentivizing prudent risk management and cross-departmental cooperations, others have voiced fears that the measure could lead to high-level defections from Citi’s brain-trust - defections the company can ill afford even as it seeks to cut jobs overall. Implied volatility at 67.3% shows a more than 20 percentage-point elevation above the 46.5% historic reading on Citi stock. The 95,000-plus lots trading in the first market hour are slightly skewed to calls, but much of this was wrapped up in call selling at the July 17.50 and 20 strikes. Put-spreaders appear to favor the August 12.50 and 15 strikes.

Myriad Genetics (MYGN) – Investors were taken aback by this morning’s news that the development of Myriad’s much-anticipated Alzheimer’s drug, Flurizan, would be discontinued after it failed to show significant improvement of patients in a final-stage clinical test. Flurizan was the most advanced of the experimental, so-called amyloid-inhibitor drugs being developed to curb the formation of plaques on brain cells that actually cause Alzheimer’s (rather than simply treating symptoms of the disease), and after promising clinical results for similar drugs from Elan Corp (ELN) and Wyeth (WYE) earlier this month, the market was looking for validation of the anti-amyloid therapeutic concept with Myriad’s clinical results. This had led to an astonishingly high elevation in Myriad’s implied volatility, which topped out at 117% on June 20. Today, the company’s shares are down 6% to $44.92 and implied volatility has reined in some 58%, making it the top implied volatility loser on our platform, to 33.4% July puts at the 40 and 45 strikes are trading to buyers and sellers along with calls at strikes of 50 and above, as it looks like traders may be getting out of volatility positions they had entered before the data was release. Put-buying appears prevalent in the August contract at strikes 40 and 45.

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