Wednesday's Options Recap

Sentiment

Stocks are holding modest gains on a slow news day Wednesday. The Dow Jones Industrial Average opened lower and extended the two-day 295-point decline following a round of mostly uninspiring corporate news. FedEx (FDX) delivered a disappointing profit forecast and some of the bank stocks stumbled, as the White House prepared to unveil its comprehensive financial regulation plan.

Meanwhile, the only economic stat of the day--the Labor Department's latest Consumer Price Index [CPI]--failed to inspire much of a reaction in the financial markets. The CPI rose just .1 percent in May, below economist forecasts of .3 percent.

At the end of the day, the financial markets really didn't have any surprises or much new information to work with. Crude oil is up 46 cents to $70.93. Gold gained $5.80 to $938 an ounce. Bonds are holding modest gains, with the benchmark ten-year Treasury up a few ticks and now yielding 3.65 percent.

The Dow Jones Industrial Average is holding steady after the two-day slide. 20 Dow stocks are higher, 10 lower, and the industrial average is up 25 points heading into the final forty five minutes of trading. The CBOE Volatility Index (.VIX) slipped 1.50 to 31.18. Trading is active ahead of this week's quadruple witch expiration, with 8 million puts and 8 million calls trade so far, a ratio of 1.00 (compared to a 22-day average of .79).

Bullish Flow

An investor made a substantial bet on Lexmark (LXK) Wednesday. Shares of the printer-manufacturer are down 14 cents to $15.26 and a spread trader surfaced in the January (2010) 17.5 and 20 calls. To be specific, it appears that the strategist bought a total of 4,000 January 17.5 calls for $1.35 while selling the same number of January 20 calls at 60 cents. If so, they paid 75 cents per spread ($1.35 - .60) and expect the stock to move higher. If held until expiration, this bullish spread pays off if LXK moves beyond the breakeven of $18.25 (19.6 percent) and has a maximum pay-off of $1.75 if shares rally beyond $20 (31 percent).

Bearish Flow

Office Depot (ODP) is down 13 cents to $4.38 and 3,200 puts traded, compared to 370 calls. The top trade of the day is 900 July 5 puts for $1 on the ISE, which is an opening customer buy order. 1,658 contracts traded total, with 90 percent hitting ask-side. Looks like bearish traders are looking for a slide in ODP. No news today. The company's CEO appeared on CNBC yesterday discussing small business impact on economic activity. Did he say something???

Implied Volatility Movers

Savient Pharmaceuticals (SVNT) implied volatility is getting crushed after an FDA panel recommended the company's Krystexxa for gout. Shares are up 61 cents, or 5.2 percent, to $12.40 on the news. Implied volatility has fallen back to 85, from more than 200 late Tuesday--before the stock was halted, news pending.

Implied volatility is also lower in FedEx (FDX), Matrixx Initiatives (MTXX), and Adobe (ADBE). Implied volatility is higher in Lennar (LEN), Teck Cominco (TCK), and RIMM.

Comments

[JamesApple:]

Rim is treading water in the most volatile period of our times swirling with strong undercurrents that can pull anything under. There are no surprises however shocking things may look. Rim is going to go under.

Jun 17 06:45 PM

[Sovestor:]

Options are good trading vehicles to make money only when you trade them on the extremes and when the volatility of the underlying securities is very high. Keep it simple.

Jun 18 03:14 AM

[JamesApple:]

I would short Rim.

Jun 19 06:49 PM