Wednesday's Options Recap

Sentiment

Stocks have given back early gains and are broadly lower for a second day Wednesday. The major averages opened higher after the latest durable goods report from the Commerce Department showed improvement in February. Orders rose 3.4 percent during that time, which was much better than economist forecasts of -2.5 percent.

The early rally was extended in morning trading after new home sales numbers also rose more than expected. Total sales rose to an annualized rate of 337,000 last month, which is up 15,000 from January and significantly better than the 300,000 economists had predicted.

Yet, in an ominous midday turnaround that has some of the hallmarks of a classic mid-week bearish reversal, the early gains were wiped out by 2:00 Eastern time. A poor auction of 5-year Treasury notes was blamed for the midday slide. The news spooked some investors because it happened on same day the UK was unable to find enough bidders in its bond action. However, after the early sell-off, bonds have held steady and the benchmark ten-year Treasury note is down 17/32nd and well off session lows.

The pullback in equities over the past two days appears to be corrective in nature after a 21.6 percent rally over the past two weeks. Risk perceptions are a bit higher nevertheless. The CBOE Volatility Index (.VIX) is up 1.15 to 44.08 and not far from session highs. 7.3 million calls and 5.6 million puts have changed hands heading into the final 45 minutes of trading.

Bullish Flow

The amount of takeover chatter has been impressive this week and the action continued Wednesday. Rambus (RMBS) was recently up 50 cents to $10.32 and April calls with strike prices ranging from 11 to 17.5 calls are active on takeover speculation. 18,000 RMBS calls traded by midday, compared to 825 puts.

Garmin (GRMN) was up 46 cents to $21.98 and 11,000 calls traded early, or about 20X (1994 percent) the expected for the first 90 min. of trading. No news on the stock, but it appears that speculative call buying might be driving the order flow. April 22.5 and 25 calls are the most actives. 9000 contracts traded and about 70 percent trading ask-side. One trader we spoke to said the interest in GRMN was due to takeover chatter.

Coventry Healthcare (CVH) and Beckman Coulter (BEC) were also the subjects of takeover speculation Wednesday.

Bearish Flow

NetFlix (NFLX) is down 62 cents to $42.80 on news Blockbuster (BBI) plans to let Tivo (TIVO) subscribers download movies from online libraries to home televisions. The move is possibly viewed as a negative for NFLX as it increases competition in the industry. Indeed, one strategist seems to be positioning for additional downside in NFLX with a bearish May 32.5/42.5 put spread along with short May 47.5 calls. All three legs traded on the ISEE, 2000X. Looks like strategist paid $1.25 for the package.

Kohl's (KSS) opened lower Tuesday morning after Citigroup removed the stock from its Top Picks Live List. Shares traded up 45 cents to $43.23 early and morning trades included 2000 April 35/40 put spreads, bought for 95 cents on the CBOE. The stock has since fallen to $40.40 and more than 20K April 40 puts have traded on the retailer.

Implied Volatility Movers

Implied volatility in Dryships (DRYS) is easing. Shares hit a low of $4.66 on earnings news and were recently down 59 cents to $4.93. Heavy selling is being seen in April puts and calls. Implied vols fell from 172 to 147.

Implied volatility is also lower in General Motors (GM), Jabil Circuit (JBL), and Citi (C). Meanwhile, implied volatility is higher in Ameron International (AMN), Beckman Coulter (BEC), and Advanced Micro (AMD).

Comments

[PeteK:]

JBL & AMD, like 2 little kids lost their directions.

Mar 26 04:04 AM

[russ:]

anyone notice that the picture of this guy looks like he could be Cramer's cousin? what a burden to bear.

Mar 26 08:35 AM