Wednesday's Options Recap

Sentiment

Stocks are trading mixed late Wednesday. With no economic data on the calendar, focus was on stock news early in the day. BofA (BAC) shares opened higher after the bank raised $13.5 billion through a stock offering the day before. Meanwhile, Target (TGT) was heading higher on better-than-expected earnings and General Motors (GM) gained ground on reports the government was set to give more funds to GM's GMAC financing unit.

Yet, while the Dow Jones Industrial Average made a run higher to revisit May 11 highs around 8,590 early, the rally ran out of gas in morning trading. Hewlett Packard (HPQ) weighed down the industrial average after reporting a decline in profits for the most recent quarter and announcing another round of job cuts.

The major averages then fell deeper into the red late in the day after minutes from the latest Federal Reserve Open Market Committee [FOMC] meeting included a downgrade of its 2011 economic forecast, but nothing really new.

In the end, investors found no real reason for aggressive buying or selling and the major average continue to chop around somewhat aimlessly. The Dow is down 30 points heading into the final 35 minutes of trading. The CBOE Volatility Index (.VIX), which made a run down to 26.57, is off .23 to 28.57. Trading in the options market is brisk, with approximately 8.4 million calls and 6.2 million puts traded so far.

Bullish Flow

Some of the gold miners saw increasing volume after gold gained $12.40 to $929.10 an ounce Wednesday. Agnico-Eagle (AEM) shares rallied $3.48 to $56.76 and volume surged in June 55 and 60 calls. Yamana Gold (AUY) volume rose to 2X normal, with 14K traded and call volume accounting for 87 percent of the volume. Gold Fields (GFI) options volume is running 3X the usual. 13K traded and 73 percent hit on the call side of the chain. 11k contracts traded on Rangegold (GOLD) and 58 percent were call options. 4,600 contracts traded on Royal Gold (RGLD) and calls represented 64 percent of the volume

Micron Technology (MU) is up 4 cents to $4.89 and options volume is running 3X the usual. 31000 calls traded, compared to 2,500 puts. The top trade of the day is a block of 15000 Jan 2010 calls at the $5 strike for $1.45 that printed within minutes of a block of 200K "derivatively priced" MU shares for $5.11. Indeed, a number of large blocks of MU shares traded throughout the day, which seems to suggest some investors might be selling calls against shares Wednesday.

Bearish Flow

iShares Emerging Markets (EEM) June puts are busy. The exchange-traded fund is up 49 cents to $32.60 and a lot of volume is in the 27 and 29 strikes, with 60.1K and 28.1K traded, respectively. Some of the activity appears to be (2X1) ratio spreads for about a nickel. If so, it's a bearish short-term play with a max profit at $27 (-17.2 percent) at the June expiration (30 days).

One of the top options trades Wednesday morning was a block of 20K GE (GE) July 14 puts for $1.07 on ISE. Sentiment data indicate an opening customer buy order. GE is up 53 cents to $14.53 ahead of a presentation at the Goldman Sachs alternative energy conference tomorrow.

Implied Volatility Movers

GM (GM) implied volatility is higher, despite gains in shares Wednesday. GM is up 20 cents to $1.47 on reports its financing unit, GMAC, will receive additional government aid. The automaker faces a deadline for restructuring plans in approximately two weeks and the uncertainty of this is even being felt in the options premiums. Implied volatility is up to 380 today, up from about 330 the day before.

Implied volatility is also higher in Zion Banc (ZION), GE, and Hertz Global (HTZ). Meanwhile, implied volatility is lower in HP (HPQ), BofA (BAC), and Solarfun (SOLF).

Comments

[expatrat:]

GE has doubled since it's march low to 14+ wonder why sep calls at 15 r so cheap?

May 20 10:23 PM