Tuesday Options Recap

Sentiment

Stocks are higher after the day's economic data didn't disappoint Tuesday. A report released before the opening bell showed retail sales rising 2.7 percent in August, which follows a .2 decline in July and compares to economist estimates of 1.9 percent. Excluding autos, sales rose 1.1 percent, also better than economist expectations of .4 percent.

Meanwhile, manufacturing activity in the Northeast improved. The NY Empire State Index jumped to 18.88 in September, up from 12.08 last month and better than the 15.00 economists had forecast.

Finally, prices on the wholesale level rose more than expected. The Producer Price Index [PPI] jumped 1.7 percent in August, which was hotter than the .8 percent economists had predicted. However, excluding food and energy, prices rose just .2 percent, or double the average economist forecast.

While the major averages struggled early, buyers surfaced mid-morning and the major averages had moved to positive territory midday. Gains in energy, metals and mining names helped, after crude oil gained $1.93 to $70.79 and gold rose $8.10 to $1009.20 an ounce.

The Dow Jones Industrial Average is up 55 points heading into the final hour. The CBOE Volatility Index (VIX) slipped .43 to 23.43. Trading in the options market is decidedly more active than Monday. Approximately 6.0 million puts and 8.1 million calls traded so far (a ratio of .74, compared to a 22-day average of .83.)

Bullish Flow

19,000 calls traded on Eastman Kodak (EK) in the first two hours, which represents 14X the expected volume and more than 15X the number of puts. The activity includes the purchase of 7,700 Sep 7 calls for 15 cents. 9,540 now traded, compared to open interest of 5,712. Sep 5 and 6 calls are active as well. No headlines on EK today. Implied volatility (average) is 102 and elevated, but not much changed since Monday.

Huntington Bancshares (HBAN) is up 18 cents to $4.27 and recent trades include a multi-exchange sweep of 5,173 Oct 4 calls at the offer for 60 cents. 12.3K traded. Looks like opening buyers (OI = 3,660).

Bearish Flow

The day after the Caterpillar (CAT) Jan10 30 - 40 (2X1) put ratio spread trades 25000X, the CAT Jan10 33 - 43 (2X1) put ratio spread trades 15000X for $1.04 on ISE. Like Monday, looks like a buyer bracing for a fall in CAT between now and Jan. However, shares are up $3 to $51.77 and the second best gainer in the Dow today following a midday surge. Company is presenting at a JP Morgan Diversified Industries conference Tuesday.

Implied Volatility Movers

Infinera (INFN), a Sunnyvale, CA comm equipment co., is up 92 cents to $8.12 and options volume is running 5X the usual. Sep 7.5 calls are the most actives. 2427 traded, 80 percent hit ask-side. Meanwhile, implied volatility (average) in INFN options is rallying to 72.5, from about 58.5 Monday.

Implied volatility is also higher in Wellcare Health Group (WCG), Potash (POT), and James River Coal (JRCC). Meanwhile, implied volatility is lower in Dendreon (DNDN), Best Buy (BBY), and Kroger (KR).

Comments

[User 486691:]

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Sep 15 05:45 PM

[sethmcs:]

Sara Lee had 4,252 Sep 10 puts trade today at $.20. Open interest is at 4,052 contracts. Quite a premium with 3 days left and the stock at $10.00. One might even suggest grossly overpriced. I am currently short puts sold after the earnings disappointment. I can't get out so I will either keep the premium if SLE stays above $10.00 or be the proud owner of SLE shares if it falls below $10.00.

Sep 15 06:18 PM