Wednesday's Options Recap

Sentiment

Stocks are seeing modest gains Wednesday, with a rebound in the financials helping the Dow Jones Industrial Average recover some of the 382-point loss from the day before. BofA (BAC) and Citi (C) are pacing a 65-point gain in the industrial average. However, the overall tone of trading remains cautious after Research in Motion (RIMM) shares fell 12 percent on earnings news and as investors continue to grapple with uncertainty regarding the deep-rooted problems in the financial world. With little other news to guide trading and no signs of definitive action from Washington, investors remain reluctant to commit too much capital to the bullish side of the trade. Consequently, the major averages are seeing only modest gains ahead of jobless claims and retail sales numbers due out Thursday morning. The CBOE Volatility Index is down 1.71 to 44.96 and, with an hour remaining in the day's trading session, approximately 4.9 million calls and 4.6 million puts have traded so far.

Bullish Flow

VMWare (VMW) is up $1.44 to $25.83 and making a run at session highs. VMW is up 8.8 percent from session lows after Reuters ran an article (link available on web site) saying Cisco's (CSCO) pursuit for the virtualization software company might be more serious than many on Wall Street believe. In the options market, volume is picking up with about 4,000 VMW puts and 2,600 calls traded, about double the expected for this time of day.

Skyworks Solutions (SKWS) is down 5.4 percent to $5.88, but is up 17.1 percent since posting better-than-expected earnings on Feb. 5. Sentiment in the options market seems very bullish towards the Woburn, MA semiconductor company, with almost 6000 calls traded, or 11X the normal levels. The action is concentrated in the August 7.5 calls. 5,800 traded and the top trade is 826 contracts at the offer for .60. The day's other activity has been in smaller size and also hitting ask-side for 60 cents.

Bearish Flow

Put volume is picking up in EOG Resources (EOG), as some short-term players look to capitalize on the stock's downward momentum. Shares of the Houston-based oil and gas co. are down $2.67 to $73.73 and off 11.1 percent since Tuesday morning. In the options, Feb 65 puts are the most actives. 3,200 contracts traded, compared to open interest of 1,373. All of the trades have been in 250 or fewer contracts and ISEE sentiment data suggest 44 percent is opening customer buys.

Advent Software (ADVS) is up 50 cents to $29.36 and it looks like an investor opened a Mar/May 25 put spread. It traded 1000X and appears to have been bought for $1.50.

Seeing interest in American Express (AXP) April 15/10 put spread. It has now traded 6000X. Shares are up 22 cents to $16.19 and looks like a buyer paying $1.35

Implied Volatility Movers

XL Capital (XL) implied volatility is falling after the company's latest profit report helped ease some balance sheet concerns. Shares are up $1.05, or 36.2 percent, to $3.95 and options volume is running at fives the normal pace, with 9,500 calls and 1,100 puts traded. Implied volatility has fallen back down to 194, from about 215 the day before.

Implied volatility is also lower in BofA (BAC), General Electric (GE), and the Powershares QQQ (QQQQ). Meanwhile, implied volatility is higher in RIM (RIMM), Great Plains Energy (GXP), and the SPDR Gold Trust (GLD).

Comments

[Mrudula Shah:]

Well...while the volatility-index approach for the market movement is a good indicaor ordinarily, this time there will be an another factor that will move the market upward starting from now. There are hundreds of billions of free dollars sitting on side lines that were apparently waiting to be invested in the so-called troubled assets of the banks and financial institutions at dirt-cheap prices to make a big killing for the very rich with lots of cash. Now, with Geitner (i.e., the Fed) telling them that the government is not so foolish to let them do that at taxpayer's cost, they will have to put that money in, where else but, equities. Camping that in real estate is too risky at this point and the treasuries or bonds not very attractive for a biog killing!! Therefore, these mighty guys managed to drag the market down 400 points with rumors that the rescue plan sucks so that they can buy up some selected securities (like GE) to maximize their profits. I believe these guys, frustrated with the Fed's rescue plan, have actually started buying equities since yesterday and will continue doing that cleverly for the next several months while scaring ordinary investors to stay away from the market through paid writers (so-called "pundits") to flood the media with stories of bad times still ahead for the market. Result: the market will seesaw. I suggest to a wise investors to just start fishing and get in with these rascals.

Feb 11 07:42 PM

[SameerR:]

mruyog--

i believe you have this entire market wrong buddy..yeah--you may get multi-day rallies (which is not healthy given the high levels of short covering)--

but given the news flow of the recent 4-day rally we had on lighter consecutive volume--i believe you are buying into the media about how this entire plan was suppose to be the "cure-all"

if you dont remember--we are still in a BEAR market until all hope has been entirely washed out

the market is still expensive on a fundamental basis given PE and EPS and whatnot, and will be for some time til this mess gets sorted out, which is not overnight

if you have a long-term horizon such as 5 years--go ahead and buy, but i believe you are bottom-picking and can guarantee you will lose money short-intermediate term

as long as were getting drastic selloffs like yesterday, this market can not be trusted on the upside

Feb 11 09:59 PM

[SameerR:]

and that cash is sitting on the sidelines for a Reason..

doesnt have to be risked into the market, if it would have came in, they would have jumped on the opportunity immediately

from last october we'd had lower consecutive highs with each support hitting dow's 8000-or-so level and s&p's 800..eventually that floor WILL give, because of the fact of very unsustainable upside..

think about it

Feb 11 10:02 PM