Monday Options Recap

Sentiment

Stocks are trading mixed in another day of quiet trading Monday. The major averages opened a bit lower, but with little news to guide early action. Shares of Verizon (VZ) gained 1 percent in pre-market after the company reported in-line quarterly earnings. However, Corning (GLW) and Aetna (AET) were under pressure after earnings fell short of expectations.

The major averages then saw a modest bounce in morning trading after the latest data on new home sales rose more than expected. According to the latest numbers, sales increased to an annualized rate of 384,000 in June, up from 346,000 in May and better than economist estimates of 352,000.

Since then, stocks spent most of the day drifting around aimlessly. The Dow Jones Industrial Average has traded in a narrow 88-point range and is down 5 points heading into the final forty-five minutes of trading. The CBOE Volatility Index (.VIX) is bouncing off 9 month lows and was recently up 1.41 to 24.50. Trading in the options market is on the light side, with 4.3 million puts and 5.4 million calls traded, a ratio of .80 (compared to a 22-day average of .84).

Bullish Flow

29,000 calls traded on Sequenom (SQNM) Monday, compared to 6,200 puts. Shares are up 77 cents to $6.35 and August 4, 5, 6, and 7 calls are seeing active trading. Seems like a mix of buying and selling, perhaps some rolling up in strike prices. Implied volatility is up to 134 (+3) ahead of earnings (expected around July 29, but date not yet posted).

RRI Energy (RRI) is down a nickel to $5.40 and options volume is running 25x the usual. A lot of the volume is the result of one block trade: 13.3K August 5 calls bought on the PHLX for 70 cents against a position in 891K shares for $5.35.

Bearish Flow

Mylan Labs (MYL) is down $1.41 and put options are active after the Pittsburg Post-Gazette reported that employees routinely overrode computer-generated warnings about possible problems with medications Mylan was producing. The article cites a confidential internal report obtained by the Pittsburg Post-Gazette. Shares are down and players are bracing for additional downside with MYL Oct 10, Jan2010 10 and Jan2010 7.5 puts. Implied volatility is up to 43, from about 41.5 late Friday.

Implied Volatility Movers

Acadia Pharmaceuticals (ACAD) is up $1.57 to $4.98 and extending the 40 percent surge from Friday. According to a CNBC article this morning, "The action was apparently driven by speculation over Acadia's pivotal Phase III trial of pimavanserin in patients with Parkinson's disease psychosis." For whatever reason, shares are surging and so is implied volatility, up to 191, from about 176 late Friday.

Implied volatility is also higher in Etrade Financial (ETFC), Sequenom (SQNM), and Interactive Corp. (IACI). Meanwhile, implied volatility is lower in Corning (GLW), Aetna (AET), and Verizon (VZ).

Comments

[TonyNed:]

CSX puts........buy lots.

Jul 27 09:07 PM