Monday Options Recap

Sentiment

Investors returned from the weekend to find the financial news covered with headlines about swine flu. While more than 100 deaths in Mexico are attributed to the new virus, more mild cases have also popped up in the US and Canada. Spain reported the first case in Europe. The UK has now identified one as well.

Overseas markets slumped as talk of swine flu spread across the globe like, well, a virus. The concern is not necessarily a direct impact on investors or the financial markets, but the implications for some industries like airlines, cruise ships and hotels. Any industry that is heavily dependent on the willingness of consumers to travel could potentially feel the effects should swine flu turn to pandemic.

Meanwhile, investors are bracing for a busy week of economic and earnings news. While no economic numbers were released Monday, consumer confidence and GDP have market moving potential Tuesday and Wednesday. On the earnings front, the news was mixed. Humana (HUM) and Qualcomm (QCOM) are seeing post-earnings gains. Verizon (VZ) is one of 23 Dow stocks moving lower after the company reported better-than-expected results, but the overall revenues failed to impress.

The Dow Jones Industrial Average is down 70 points heading into the final hour of trading. The NASDAQ has lost 18. Investor anxiety levels are clearly higher and the CBOE Volatility Index (.VIX) is up 2.44 to 39.26. Trading in the options market is on the light side after the ISE experienced technical problems and didn't operate throughout most of the morning session. Approximately 5.5 million calls and 4.4 million puts traded so far.

Bullish Flow

Rambus (RMBS) is rolling and calls are busy. Shares are up $1.58 to $11.52 and caught bid on heavy volume Monday afternoon. Briefing notes the move coincided with a Bloomberg story about a possible settlement between RMBS and European Union regulators over accusations it sought "unreasonable royalties." Options traders are reacting as well, with very heavy trading seen in RMBS May calls with strike prices between 10 and 15.

Dow Chemical (DOW) is down 54 cents to $12.54 and call options are seeing some action ahead of earnings (April 30, before market). 14K contracts traded, compared to 3,125 puts. Today's action includes 3 blocks of May 15 calls totaling 4,900 contracts at the offer for 25 cents. Looks like buyers in May 12.5 and May 14 calls as well.

Bearish Flow

Starwood Hotels (HOT) puts are actively traded ahead of earnings (April 30, before market). Shares are down $2.33 to $18.49, as concerns about the outbreak of swine flu raises worries about the outlook for travel and tourism. Casinos (MGM) (LVS) (MPEL) are under pressure. In the options market, 18K puts traded on HOT, or about 11X (1096 percent) the expected. 11.8K May 17.5 puts traded and the activity includes 4,495 contracts bought for $1.10 on the AMEX. Implied volatility is up to 91, from about 78 late Friday.

The PHLX Euro Currency Index (.XDE) is seeing bearish order flow. The euro was recently down .0128 to 1.3113 on the buck. Consequently, XDE, which is a cash-settled index that tracks the Euro/USD currency pair X 100, is down 1.42 to 131.15 and options volume is running 2X the usual. The volume is concentrated in June 120 puts, with 2400 traded. Some investors appear to be buying the out-of-the-money puts, probably in anticipation of additional weakness in the European currency from now until mid-June.

Implied Volatility Movers

Verizon (VZ) implied volatility is falling to multi-month lows after the company reported earnings and USA Today said that the company might be in talks with Apple (AAPL) about a new iPhone for Verizon. Shares hit a low of $30.14, but then battled back to unchanged at $31. Implied volatility edged down to 32, from about 34 the day before.

Implied volatility is also lower in Humana (HUM), Qualcomm (QCOM), and BofA (BAC). Meanwhile, implied volatility is higher in General Motors (GM), Wells Fargo (WFC), and BioMarin (BMRN).

Comments

[PETE Surckla:]

I PREFER PRUFROCK

Apr 28 10:54 AM

[PETE Surckla:]

I PREFER PRUFROCK

Apr 28 10:54 AM