Tuesday Options Recap

Sentiment

The major averages are sporting modest gains, but have traded in a tight range Tuesday. The S&P 500 is up 5 points heading into the final forty-five minutes and has been confined to a 10-point range.

The tech-heavy NASDAQ is seeing a bit more action. The NASDAQ is up 20 points and outperforming after Texas Instruments (TXN) lifted its second quarter earnings forecast, which sparked a morning rally in the chip stocks. Intel (INTC) is up 3.7 percent and helping to lift both the Dow and the NASDAQ.

AXP is the best gainer in the Dow Jones Industrial Average. Shares are up 4.4 percent on news it is among the financial institutions allowed to repay TARP funds. Chevron (CVX) is also helping the industrial average. Shares moved higher along with crude, which gathered some late day momentum to close near $70 a barrel, up about $1.90 from the day before.

However, the overall tone of trading remains somewhat uninspired. 17 Dow stocks are lower, 13 higher, and the industrial average is up 7 points. The uneventful market action has the CBOE Volatility Index (.VIX) down 1.51 to 28.26. Trading in the options market is picking up from Monday's slow pace, with approximately 5.8 million calls along with 4.6 million puts traded so far.

Bullish Flow

The solar sector is shining Tuesday. A number of names (CSUN, LDK, STP, CSIQ) are seeing relative strength. JA Solar (JASO) is among them. Shares are up 83 cents to $5.98 and, in the options market, sentiment seems bullish as well. 8,900 JASO calls traded so far, compared to 2,000 puts. Today's call volume represents almost 9X (878 percent) the expected and is focused on Sep 5, June 7.5, and June 5 calls. Implied volatility is moving as well, to 116, from about 109 the day before. Premium buyers are driving the order flow and sending premiums (implied volatility) higher and probably betting that shares will continue shining in the days and weeks ahead.

Traders are seizing Sequenom (SQNM) calls!!! Shares are up $1 to $4.35 on talk of a positive resolution to an anticipated SEQureDX launch. Trading in the options market is brisk, with 25,000 calls and 6,000 puts traded. The activity is scattered–June 4, June 5, Sep 7.5, and July 5 calls are the most actives. Heavy buying is being seen and directional sentiment based on the total order flow is 70 percent bullish. Implied volatility rallied to 156, from about 122 the day before.

Bearish Flow

Morgan Stanley (MS) is down 56 cents to $30.83 and 70K puts traded today, compared to 16K calls. The top trade is a block of 15K July 27 puts for 90 cents at 10:36 on the PHLX, which was an initiated as a purchase, according to a floor contact. About 30 minutes later, 6,500 more were bought for $1.00. 26K now traded. Meanwhile, in afternoon trading, a block of 10.8K July 29 puts traded on the ISE, which was an opening customer buyer, according to sentiment data. So, it appears that large buyers are driving the increased put volume in Morgan Stanley. The interest is sending implied vols back to 57, from multi month lows around 54 seen the day before.

Trucking company YRC Worldwide (YRCW) is unchanged at $2.63, but some traders appear to be looking for a move lower before the June expiration (10 days). 6,425 June 2.5 puts traded, compared to open interest of 3,983 contracts. 96 percent of the trades hit at the offer and ISEE sentiment data confirm that customers are buying to open new positions. Implied volatility is elevated (154) and moving higher (up from 148 yesterday).

Implied Volatility Movers

Texas Instruments (TXN) options volume surged Tuesday. Shares rallied $1.07 to $20.84 and players in the options market are scrambling Tuesday morning after the chipmaker surprised the Street with upbeat guidance. TI says it expects 14 to 22 cents per share in the 2nd quarter, compared to 10 cents analyst estimates. Premium sellers are driving a lot of the flow and implied volatility is falling back to multi-month lows below 33, down from about 38 the day before.

Comments

[gebby:]

so what

Jun 10 01:53 PM