Tuesday Options Recap

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 |  Includes: AUY, AXL, BAC, DFG, GERN, GYMB, HD, HURN, KRE, SRS
by: Frederic Ruffy

Sentiment

Stocks rebounded from steep losses suffered yesterday and are trading mostly higher late Tuesday. Home Depot (NYSE:HD) is helping the Dow Jones Industrial Average recapture some of the 186 point drop suffered Monday. HD is up 2.6 percent after the home improvement retailer reported quarterly earnings that beat Street estimates. Twenty-three other Dow stocks are higher, six are lower, and the industrial average is up 85 points heading into the final hour of trading. The NASDAQ is up 25.

Volume is light and trading remains rangebound, however, as the day's economic news didn't offer much reason to cheer. A report released before the bell showed housing starts fell by 6,000 to an annualized rate of 581,000 homes in July. Economists were looking for an increase to 599,000. Building permits, a better gauge of future activity, fell by 10,000 to 560,000. Economists were expecting 577,000.

Meanwhile, a separate report showed a surprise plunge in July producer prices. According to the Labor Department, the Producer Price Index [PPI] fell .9 percent last month, down from 1.8 percent in June and well below economist estimates of -.3 percent.

Nevertheless, after two-days of selling, the major averages found a floor early and have been grinding higher throughout the session. The CBOE Volatility Index (.VIX) is down 1.61 to 26.28. Trading in the options market is running about the usual levels, with approximately 4.8 million puts and 5.7 million calls traded so far (a ratio of .84, compared to a 22-day average of .80.)

Bullish Flow

Yamana Gold (NYSE:AUY) calls are active for a second day. Open interest in AUY calls increased by 5,000 following active trading yesterday (compared to +486 puts). Today, 14K calls traded, compared to 820 puts. One player paid 34 cents a contract for 5300 Jan10 12.5 calls in midday trading on the AMEX, according to an exchange-floor contact. Looks like buyers of Jan10 10, Oct 9, and Jan10 9 calls as well. No news on the stock. Gold is up $4.20 to $940.20 an ounce.

Bearish Flow

Big Print in the SPDR KBW Regional Banking ETF (NYSEARCA:KRE) after 20K Sep 15 puts traded on the ISE for a dime, which is an opening customer buyer, according to sentiment data. KRE is up 17 cents to $20.94.

A block of 10000 Ultrashort Real Estate (NYSEARCA:SRS) Jan10 calls at the 30 line that traded mid-market for $1.05 on ISE appears to be tied to a block of 260K SRS shares for $13.50 and possibly part of a buy-write strategy. SRS is down 20 cents to $13.29.

Implied Volatility Movers

American Axle (NYSE:AXL) implied volatility is lower after the company said it had secured a new agreement with creditors. AXL is up 100 percent to $5.25 per share and implied volatility is falling back towards 200, from about 220 yesterday.

Implied volatility is also lower in Home Depot (HD), Huron Consulting (NASDAQ:HURN), and BofA (NYSE:BAC). Meanwhile, implied volatility is rising in Delphi Financial (NYSE:DFG), Gymboree (NASDAQ:GYMB), and Geron (NASDAQ:GERN).