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Options Edge: Overseas Shipholding, General Electric, Apple Inc., and Goldman Sachs

The oil tanker issue reported a stronger-than-expected third quarter

by Elizabeth Harrow (eharrow@sir-inc.com) 11/2/2009 9:23 AM

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Today's column includes a narrower-than-expected quarterly deficit from Overseas Shipholding Group Inc. (OSG), progress on a potential NBC Universal deal for General Electric Company (GE), a modest iPhone reception for Apple Inc. (AAPL) in China, and a potential agreement between Goldman Sachs Group, Inc. (GS) and Fannie Mae (FNM). Each day, Options Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.

Overseas Shipholding Group Inc.

Overseas Shipholding Group Inc. (OSG: sentiment, chart, options) reported a third-quarter loss this morning, as the company's revenue was negatively impacted by a drop in shipping rates. The company swallowed a quarterly loss of $19.6 million, or 73 cents per share, down sharply from its year-ago profit of $6.69 per share. Revenue for the period fell 48% to $243.6 million. However, the results were better than Wall Street anticipated; analysts were expecting a loss of $1.08 per share on $232 million in revenue.

OSG price chart "As expected, we faced very tough market conditions during the third quarter," stated Morten Arntzen, OSG's president and CEO. "Year-over-year contractions in global oil demand and oil production, notably by Saudi Arabia, were exacerbated by continued poor refining environments."

OSG has added 14.3% in pre-market trading, as traders have been pleasantly surprised by the slimmer-than-expected loss. The equity recently consolidated into support at its 10-week moving average, which could now serve as a springboard to launch the shares higher.

Option players favored bearish bets on Friday, suggesting low expectations for OSG's earnings report. Put volume accelerated to twice the normal daily level, with most of the attention focused on the stock's November 40 put. Open interest at this strike rose over the weekend from 1,585 contracts to 1,747 contracts, confirming that new puts were added here on Friday. Currently, OSG is set to open north of this round-number strike.

General Electric Company

A report today in The New York Times indicates that General Electric Company (GE: sentiment, chart, options) is close to striking a deal with Comcast (CMCSA) for its NBC Universal unit. Under the terms of the pending agreement, GE would retain a 49% stake in NBCU, while Comcast would acquire a 51% stake in the blue-chip conglomerate's entertainment division. Sources close to the matter told the Times that an announcement could be made as soon as this week.

GE is fractionally higher ahead of the bell. The stock finished last Friday below support at its 80-day moving average, which is currently situated near $14.50. If the shares can't reclaim a foothold above this trendline in the short term, it could potentially switch roles to act as resistance.

Meanwhile, a hefty dose of out-of-the-money call open interest could also pressure GE during the coming weeks. The stock's November 16 strike is home to peak front-month call open interest of 61,822 contracts, with another accumulation of 55,951 contracts in residence at the November 17 call. As expiration draws closer, these overhead calls could exert options-related resistance.

Apple Inc.

Apple Inc.'s (AAPL: sentiment, chart, options) iPhone has received a "lukewarm reception" in China, according to a report in The Wall Street Journal. The smartphone's official Beijing launch party was thrown by China Unicom (CHU) on Friday, but there was "no sign of the sellout reception" that accompanied the iPhone's U.S. and Japanese launches. The Journal notes that the Chinese market is a key one for Apple, with 710 million mobile users in the country, but many potential consumers prefer a cheaper alternative: gray-market iPhones.

AAPL is modestly higher in electronic trading, despite the iPhone's anticlimactic overseas launch. The stock maintains solid support at its 10-week moving average, although the shares pulled back dramatically after challenging the $200 level in late October.

With AAPL preparing for another test of this century-level resistance, option players are showing a skew toward pessimistic positions. The stock's Schaeffer's put/call open interest ratio (SOIR) weighs in at 1.40, just two percentage points from an annual bearish peak.

Goldman Sachs Group, Inc.

Goldman Sachs Group, Inc. (GS: sentiment, chart, options) is reportedly in talks to buy millions of dollars in tax credits from Fannie Mae (FNM), according to The Wall Street Journal. Goldman had no comment on the matter, but it seems that federal regulators are keeping a close eye on the proceedings. "Treasury is reviewing and will not let it proceed unless it is clearly in the taxpayers' interest," asserted spokesman Andrew Williams.

GS is up nearly 1% in pre-market action, extending its impressive year-to-date gain of 101.6%. The stock finished last week just a hair's breadth below support at its 80-day moving average, but found an alternate backstop at the round-number $170 level -- a former site of resistance.

Judging by recent option activity, speculators expect GS to keep climbing. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 1.18 calls for every put on the equity. This ratio ranks higher than 75% of other such readings taken during the past year, revealing that bullish bets have been more popular than usual of late.

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