Options Market Mixed On Janus and Bill Gross

Options trading in Janus Capital Group (JNS) has a surprisingly defensive tone even though the stock is up some 34% on news Bill Gross was joining.

Gross, of course, is the Bond King of Wall Street. He built PIMCO into one of the world's largest bond firms, only to stun the Street today with news he was joining a firm that has not been highly-regarded since the 1990s.

With the stock around $14.92, Janus's October $14 puts are trading actively in anticipation the stock declines.  So far, almost 17,000 puts have traded. The puts are priced with an implied volatility of 68.4%, which makes it one of the highest implied volatility options in the financial sector, and much of the market.

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Overall, Janus' options have traded 13.8 times usual volume. So far, about 13,000 calls have traded – much of which look like sales. Typical trading volume is 80 contracts. It seems investors are selling calls to express a view that the stock surge will not last. 

Bearish puts have traded about 48,000 contracts. Typical trading volume is about 2,965 contracts.

Meanwhile, at-the-money options implied volatility – the options market's equivalent of the stock – set a 52-week high. Most investors tend to sell options with expensive volatility in anticipation it ultimately declines to average levels. Janus' historical volatility is about 23%. Overall, implied volatility is about 52%.

It is possible that Gross recreates his now lost empire at a firm not know for bonds. It is probable, however, that his competitors, including Blackrock (BLK), Goldman Sachs (GS) and Jeffrey Gundlach's Doubleline Capital do everything possible to make Gross realize that all glory is fleeting.

Sandler O'Neill's Michael Kim, who follows Janus, told clients Gross likely increases Janus' profile. But he wrote in a note that it was too early to conclude much more. He is maintaining his Hold rating – which essentially means sell the stock.

That's why Janus' upside calls look like better sales than buys, and the downside puts look like better buys, provided one can overcome the volatility pop.