Volatility crushed at UPS after announcing salary freeze for management

Today’s tickers: UPS, SNDK, WFC, AN & DHI UPS – United Parcel Service – Implied volatility cratered by 22% following fourth quarter earnings at parcel carrier, UPS, whose shares responded positively to measures aimed at countering a slump in demand. Shares rallied 6.4% off Monday’s 52-week low to stand at $45.12 as the company reported a 3.9% decline in demand for the quarter ending in December. The company’s fortunes are strongly correlated to GDP and are seen as a barometer of economic health. While UPS disappointed analysts with its prediction of first quarter volume declines of between 3-5%, it also missed EPS projections of 69 cents per share with a forecast range of 52-68 cents. The silver lining, if it can be described in such light, was the salary freeze of 30,000 managers or 7% of its global workforce. Option traders slashed uncertainty on the stock as implied volatility fell 22% to stand at 39% thanks to the greater transparency from management. Several volatility strategies were enacted with sales of the February 40/45 strangle some 800 times netting the investor 1.45 premium indicating that the shares must remain hemmed between $46.45 and $38.55 by expiration in three weeks time. In the March contract investors sold the 45 strike straddle at a gross 5.05 premium indicating a likely share price range of $50.05 and $39.95. Finally, a large amount of July expiration puts were purchased at 3.20 at the 40 strike in exchange for 7,500 January 2010 call options at the 45 strike at 6.10. SNDK – SanDisk Corp. – After earnings were released yesterday, things are certainly looking less than picture perfect for flash memory card maker SanDisk. The Milpitas, CA based company reported larger-than-expected fourth quarter losses in the amount of $1.86 billion or $8.25 per share. SNDK also sent up a red flag yesterday by announcing that they may need to issue more equity to the tune of $300 to $500 million which would dilute currently held shares by 12% to 20%. The disappointing results have shares down by 24% today to $8.58, and option traders wasted no time reacting to the falling share price. Most of the action was seen in the February and April contracts. In February, traders sought downside protection and purchased about 1,500 puts at the 8.0 strike for an average price of 59 cents. On the call side, approximately 2,500 calls were purchased at the February…