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Monday, August 10th 2020

Kodak's Turmoil As Seen Through Options

Kodak options have been crazy with the run up and fall associated with the government loan.

Summary

Eastman Kodak's $765 million loan from the federal government to make drugs has been put on hold due to a SEC investigation and increased scrutiny. The options market saw a surge in trading activity and implied volatility leading up to and after the announcement, with the Aug 21st $2.5 call trading at a high of $5.5 and the call/put ratio reaching 3.6. The stock price has since fallen, but options traders still expect volatility with IV at 245%.

Due to a SEC investigation and increased scrutiny, the $765 million dollar loan to Eastman Kodak (KODK) from the federal government to make drugs has been put on hold.

News of the loan was a panacea for KODK when it broke on 7/28/20.

The options market tells the tale. On 7/27/20 the average number of options that trade in the entire options chain for KODK was 115 contracts for the trailing 20 days.

The day before the huge announcement, 1500 options traded, 10x normal. The most traded contract at 651 contracts was the Aug 21st expiring $2.5 call for $0.45 last trade. Call/put ratio was 3.6.

When the news did hit the tape on 7/28, 130k options traded. 23,500 calls traded for a call/put ratio of 0.2 with the 2.5 puts in Aug21st trading the most. The Aug 21st $2.5 call traded last at $5.5.

The implied volatility shot up over the period. On Monday the 27th IV was up 10 points from the previous Friday indicating buying of options. On the 28th it was up 140 points to an incredible 271%.

At the high of $60 on the 29th the Aug 21st $2.5 calls would have been worth about $57.5. The profit at that point of the 651 contracts that traded at a closing mark of .45 would have had an unrealized gain of $3.7million at the intraday high.

What a lucky trade!

Today, with the stock price back down to $10.75, IV is at 245% as options traders expect more craziness in this stock.

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