Tuesday's Options Recap

Sentiment

Stocks struggled at the open, but found a floor in morning trading and bounced higher after the latest data on consumer confidence surprised to the upside. According to data released 30 minutes into the trading session, the Conference Board's Index of consumer confidence jumped to 54.9 in May, up from 40.8 the month before and much better than economist estimates of 42.6.

The news triggered a reaction across a number of different asset classes. Bonds, which were showing modest gains ahead of the news, sank into the red. Crude oil had fallen below $60 a barrel, but battled back to close up 64 cents to $62.32 a barrel. Meanwhile, stocks surged and never looked back.

The Dow Jones Industrial Average is up 177 points heading into the final forty minutes of trading. The NASDAQ gained 50 with help from Apple Computer (AAPL), which is up 6.4 percent to $130.3 after an analyst upgraded the stock, saying iPhone growth has been underestimated.

Volume is picking up from the slow pace seen on Friday. Approximately 4.4 million puts and 6.4 million calls traded so far. The CBOE Volatility Index (.VIX) is down 1.55 to 31.08 and off session lows of 30.40 ahead of a busy week for economic news, which includes existing home sales numbers Wednesday morning.

Bullish Flow

Yingli Green Energy (YGE) is up $1.76 to $11.11 after Lazard analysts upgraded the stock to Buy from Hold and Collins Stewart analysts raised their price target to $11. In the options market, volume is running 2X the normal, with 20K calls and 2400 puts traded. June 7.5 and 10 calls are the most actives. Some investors are likely closing positions, as YGE June calls were the subject of increasing buying interest on April 29 (when shares traded for $6.65) and May 11 (when YGE traded near $8.70.) Implied volatility is about 105, up from multi-month lows of 96 late Friday.

US Natural Gas Fund (UNG) is down 8 cents to $13.62, but some players expect the fund to heat up before the October expiration. More than 18K October 14 calls have traded today, compared to open interest of 6,798. Natural gas is down .026 to $3.489.

Bearish Flow

Cemex (CX) is up 42 cents to $9.91 and almost 50K June 9 puts traded, or almost 5X the existing open interest. Most of the volume is due to one trade, where an investor bought 45K contracts for an average of 47.5 cents against a position in 1.45 million CX shares for $9.85. No news on the Mexican cement maker today, but this trade appears to be a bet on heightened volatility in shares, with profits possible if the stock makes a big move higher or lower. The worst-case scenario? Shares close at $9 at the June expiration (24 days). Implied volatility is up to 75, from about 69 late Friday.

New York Times (NYT) is down 3 pennies to $6.73 and 6,100 puts traded Tuesday. The put volume represents 13X (1,344 percent) the expected and compares to 100 call options. Top trade of the day is a block of 1,705 July 7.5 calls for $1.45 on the ISE, where sentiment data indicate an opening customer put buyers. It appears to be an opening customer purchase of 3000 contracts. Implied volatility is up to 80 from 76 after a Miami Herald article titled "Twitter Poses a Risk to Newspapers" made the rounds Tuesday morning. Not long after, OptionMonster wrote on Twitter that NYT, along with GCI, WPO, PSO, and SSP, is on their "newspaper watch list."

Implied Volatility Movers

GM (GM) implied volatility is easing a bit. Shares hit a low of $1.12 on bankruptcy fears early, but are up 11 cents to $1.54 late on reports the automaker has secured additional government financing. The story is still developing. Implied volatility eased about 2.5 points, but remains extremely elevated at 425 percent.

Implied volatility is also high in Yingli Energy (YGE), AgFeed (FEED), and Ivanhoe Mines (IVN). Meanwhile, implied volatility is lower in Citi (C), United Therapeutics (UTHR), and Seagate (STX).

Comments

[shrike:]

50,000 contracts on CIT June $5 calls traded today and the current stock price is $3.35.

May 26 10:03 PM

[dmilmagic:]

What are your guys' thoughts on what GM's stock price will do over the next couple of days. I think it will climb all the way up to $2.00/share and then slowly come back down after the BK news fizzles out. Am I wrong?

May 27 01:37 AM