Monday's Options Recap

Sentiment

Stocks are broadly higher late Monday as investors applauded government efforts to help banks rid balance sheets of bad debt. The financials are leading the Dow Jones Industrial Average higher. BofA (BAC) is up 18.2 percent and Citi (C) gained 16.8 percent. All thirty Dow stocks are higher and the industrial average is up 360 points heading into the final hour of trading.

Equities also seemed to get a lift Monday morning after the only economic stat on the calendar today -- existing home sales -- rose more than expected. Sales increased 5.1 percent to an annualized rate of 4.72 million homes in February. Economists were looking for a decline to 4.45 million from 4.49 million.

In the options market, trading is active. About 8.4 million calls and 6 million puts have traded so far. Citi has the most actively traded options contracts. Meanwhile, risk perceptions are easing, but the CBOE Volatility Index (.VIX) remains within its recent range. VIX is down 3.19 to 42.70 and still above last week's resistance lows around 39.

Bullish Flow

iShares Japan Fund (EWJ) gained 48 cents to $8.15 along with the Nikkei (+3.4 percent) after Japan's finance minister said up to $20 trillion yen ($208 billion) of government spending might be needed to move the country out of recession. In the options market, April 8 calls are the most active, after an investor apparently bought 20,000 contracts on the ISE for 38 cents. ISEE Sentiment data indicate an opening customer buy of all 20K contracts.

Looks like some bottom fishers in Viro Pharma (VPHM) Monday. Shares are up a dime to $4.11 and 2,000 calls VPHM calls have traded, which represents about 20X (2018 percent) the typical volume for midday. Most of the action is in May, April, and August calls at the 45 strike. Shares are trying to stabilize from recent losses. VPHM has lost two-thirds of its value since Feb 6 when shares fell on news Phase 3 trials of maribavir used as prophylaxis in bone marrow transplant patients did not achieve primary endpoints.

Bearish Flow

SPDR Retail Trust (XRT) is up 80 cents to $22.13 and sentiment in the options market is mixed. In fact, the top trades of the day seem to reflect some pessimism towards the retailers after the 8,400 Sep 20/15 put spreads traded 8400X on the ISE. It appears that the strategist bought 8,400 September 20 puts for $2.27 while selling 8,400 September 15 puts for 72 cents. If so, they paid $1.55 and have a potential pay-off of $3.45 if the retailers falter and XRT settles at $15 or less by the September options expiration.

Sun Micro (JAVA) is down 20 cents to $7.90 and showing relative weakness Monday morning on talk IBM (IBM) acquisition speculation, which lifted shares almost 80 percent last Wednesday, might not happen. JAVA options are active, with 10K puts and 12K calls traded so far. The top trades of the day seem to reflect hopes for higher prices, as the April 8/10 call spread traded 1900X for 83 cents early. Looked buyer initiated.

Implied Volatility Movers

Advanced Micro (AMD) puts are active and implied volatility is higher Monday. Shares are up 27 cents to $2.94 and 37K puts traded, or about 69X (6907 percent) the expected for the first two hours of trading. Implied volatility is up to 115 from about 110 late Friday.

Implied volatility is also higher in General Motors (GM), Sun Micro (JAVA), and Comtech Telecomm (CMTL). Meanwhile, implied volatility is lower throughout the financials, with Dow components Citi, BofA (BAC), and JPMorgan (JPM) seeing a second week of falling implied vols.

Comments

[rayman:]

long rvx puts.....still peckin away.....

Mar 23 06:26 PM

[rayman:]

i hate whatstrading.com.....lol, they are "watching" me.....Fred, just kidding awesome site, that's me on the mini FTSE calls.....btw, not listing the index here though for privacy reasons

Mar 24 02:48 AM