Tuesday Options Recap

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 |  Includes: BK, CAT, ELX, EWJ, KNDL, PPDI, SCSC, TCK, TEX, YHOO, ZION
by: Frederic Ruffy

Sentiment

Stocks bounced back from early losses and are trading broadly higher late Tuesday. With no economic data on the calendar, the focus was on earnings and the financials early in the trading day. Four Dow components -- Coca Cola (NYSE:KO), Caterpillar (NYSE:CAT), DuPont (NYSE:DD), and Merck (NYSE:MRK) -- released results before the bell and mixed results failed to stir much movement in stock index futures, which had fallen into the red before the opening bell on Wall Street Tuesday morning.

Concerns about problems in the financial world and volatility in the financial sector after steep losses suffered Monday weighed on sentiment early. After falling 24 percent Monday on worries about losses in its mortgage and credit card businesses, BofA (NYSE:BAC) was again trading lower in pre-market action Tuesday. Citi (NYSE:C), which fell 19.5 percent Monday, was also heading southward.

However, Citi found some morning strength with help from soothing words from the bank's CEO Pandit. Citi's Chief said the bank is going to rebound and he intends to "see this through." Shares, which hit a low of $2.61 early, battled back into positive territory and were recently up 29 cents to $3.23. BofA bounced back and is up 75 cents to $8.77 heading into the final hour of trading.

BofA and Citi are two of 24 Dow stocks moving higher and the industrial average is up 90 points. The CBOE Volatility Index (.VIX), which rallied more than 5 points Monday, is down 1.89 to 37.29. Trading in the options market is on the light side, as many short-term players get chopped up by the whipsaw market action so far this week. Approximately 7.1 million calls and 6.2 million puts traded Tuesday.

Bullish Flow

Terex (NYSE:TEX) is up 47 cents to $11.78 and directional sentiment in the options market is bullish. 8,350 calls and 660 puts traded so far. Most of the interest is in June 15 and July 17.5 calls and includes a recent multi-exchange sweep of 3000 July 17.5 calls at the offer for 45 cents. Earnings due out today after market. Implied volatility is elevated, around 94, but not much changed on the day.

iShares Japan Fund (NYSEARCA:EWJ) is up 9 cents to $8.43 and one strategist seems to expect rangebound trading, perhaps up towards $9 per share throughout 2009, and sold the EWJ Jan (2010) $9 straddle for $1.95, 10000X. The trades hit on the PHLX Tuesday morning and exchange floor contacts confirm it was a straddle write. Since volume exceeds open interest in both contracts, it also looks like a new position and, if so, a bet that EWJ will not make a significant move above or below $9 per share.

Bearish Flow

Large blocks of puts traded on Caterpillar (CAT) Tuesday. Shares opened lower and fell to $28.50 after the company reported its first quarterly loss since 1992. Since then, the stock has moved back to $30.98, up 50 cents on the session. Sentiment in the options market seems somewhat bearish despite the midday bounce. 129K puts traded, compared to 49K calls. Recent trades include a sweep of about 20K August 20 puts at the offer for $1.10. Earlier, an investor bought 15K August 17.5 puts for 65 cents.

ScanSource (NASDAQ:SCSC) is up 33 cents to $21.67 and options volume is running 350X the normal levels on increasing interest in June 20 puts. The top trade is 4,821 contracts for $1.45 on NYSE when the bid-ask was $1.15 to $1.50. Looks like an opening buyer. 5000 contracts traded total. Implied volatility is up to 65 from about 58 yesterday ahead of the computer wholesaler's April 23 (after market) earnings release. The company guided revenue estimates lower on April 8 citing softness in all of the company's business units and geographies.

Implied Volatility Movers

Implied volatility in Yahoo (NASDAQ:YHOO) options has been moving higher ahead of earnings due out after the closing bell. YHOO is up 71 cents, or 5.2 percent, to $14.37 ahead of the news. Implied volatility is moving towards 80, and significantly higher than the mid-60s seen one week ago.

Implied volatility is also higher in Pharmaceutical Product and Development (NASDAQ:PPDI), Zionz (NASDAQ:ZION), and Kendle International (NASDAQ:KNDL). Meanwhile, implied volatility is lower in Teck Cominco (NYSE:TCK), BofNY (NYSE:BK), and Emulex (NYSE:ELX).