Monday Options Recap

Sentiment

The table was set for a morning advance for the equity market after a report on China industrial activity showed a third consecutive month of improvement. Hong Kong's Hang Seng rose 4 percent and shares traded broadly higher across Europe. Higher commodity prices also helped support gains in overseas markets.

In the US, data on consumer spending/incomes released pre-market came in ahead of expectations and, when the bell sounded on Wall Street, the Dow bounced in morning trading. The rally was extended after two separate reports on construction spending and manufacturing [ISM] released mid-morning also exceeded economist forecasts.

The better-than-expected economic news seemed to overshadow concerns about a GM bankruptcy. In fact, GM is one of 24 Dow stocks moving higher late-Monday (the reason isn't clear, but some speculate that short covering along with some "lottery ticket" buying is driving gains in the automaker).

Meanwhile, Cisco (CSCO) is helping the NASDAQ on news the networking company will replace GM in the Dow Jones Industrial Average (making it the third NASDAQ-listed stock to find its way into the 106-year old average). CSCO is up $1.08 to $19.58.

Higher commodities prices are also getting some attention. Not only is crude oil up more than $2 and moving beyond $68, other energies and some of the metals are also seeing big gains. In the options pits, trading is active, with approximately 8.3 million calls and 6.2 million puts traded heading into the final hour.

Bullish Flow

Southern Copper (PCU) is up $1.72 to $22.65 after copper (July) gained 12 cents to $2.32. In the options market, sentiment seems bullish, with 7,800 calls and 1,900 puts traded so far. June 20 and Jan (2010) 25 calls are the most actives. Implied volatility is steady around 53.

Applied Materials (AMAT) is seeing relative strength and active trading Monday. Shares are up 75 cents to $12.01 and 25K calls traded so far, or more than 10X the number of puts. The activity is scattered across June and July calls with strike prices ranging from 10 to 13. January 2010 calls at the 12.5 line are also seeing interest. While buying interest is being seen as shares move higher, some of the activity might be closing, as AMAT calls saw increasing volume Wednesday when the stock was around $11.30. Implied volatility is steady near 45.

Bearish Flow

A substantial put ratio spread recently traded on the SPDR Retail Trust (XRT). Shares of the exchange-traded fund are up $1.65 to $29.14 and one player bought the Sept 20 - 25 put spread 25000X (bought 25K Sep 25s and sold 50K Sep 50s) for an average of 47.5 cents. Looks like a new position and possibly a hedge going into monthly retail sales numbers Thursday.

Spyders (SPY), an exchange-traded fund that holds all of the S&P 500 stocks, is up $2.10 to $94.62 and the top options trade in the options market Monday is a block of 50K SPY June 90 puts for $1.01 on the ISE, an opening customer buyer, according to ISEE sentiment data. 138K now traded, making it today’s most actively traded options contract.

Implied Volatility Movers

The CBOE Volatility Index (VIX) is straying from its normal pattern. VIX normally moves lower when stocks rally. The index is up .80 to 29.72 and the gains in the index might be due to the “event risk” going forward. The economic calendar is busy throughout the week and includes key monthly payroll data Friday.

Implied volatility is also higher in Traveler’s (TRV), Dryships (DRYS), and PNC (PNC). Meanwhile, implied volatility is lower in GM, Citi (C), and Lion’s Gate (LGF).

Comments

[Kevin Walmsley:]

We took down a small covered call position in DRYS this afternoon, selling the June 7.5 calls.

Jun 01 07:11 PM

[dgdatta:]

I have very good I mean quantity of bull call spread..some are 6/7.5 $ spread where as others are 6/9 $ bull call spread expiring in this month of June..

Hopefully in three weeks long term contract of iron ore wud be finalised with china..generally in may index top up to highest level..after Oct 2007..it was in may 2008 that it want to 11500..

All the best for investing..

Jun 02 09:35 PM