Tuesday Options Recap

Sentiment

Stocks are holding modest gains on another slow news day Tuesday. The major averages opened steady after markets across Asia and Europe moved mostly higher. A rebound in crude oil, which is up $1.84 to $71.77 a barrel, and gains in gold helped drive gains in some of the energy, metals and mining names. Gold added $10.40 to $1015.30 an ounce.

The only economic stat of the day came early after the FHFA released its Housing Price Index for July, which increased by .3 percent in July. Economists were looking for a .4 percent increase. The market didn't show much reaction to the news.

Instead, the focus is beginning to shift to the Federal Reserve and the post-meeting statement due out Wednesday afternoon. There is no economic data due out Wednesday morning and so not much else to drive the trading.

Consequently, the Dow Jones Industrial Average is up 40 points heading into the final forty-five minutes of trading. The NASDAQ is up 8.4. The CBOE Volatility Index (.VIX) slipped .87 to 23.19 despite tomorrow's looming event risk. Trading in the options market is running about the typical levels, with approximately 4.9 million puts and 6.3 million calls traded so far (a ratio of .78, compared to a 22-day average of .76).

Bullish Flow

Ambak (ABK) is up 34 cents to $1.99 and options volume is 3X the average daily. Oct 2.5 calls are leading the flow, with 11.4K traded, 69 percent hitting ask-side. Looks like buyers of Nov, Jan, Feb, and May 2.5 calls as well. Although there is no company-specific news in MBIA (MBI) (which is seeing heavy trading as well) and ABK, the group is rallying on two days of big gains in AIG (AIG) and talk of government help for CIT (CIT), which seems to have sparked renewed interest in other low-priced second tier financials.

Smith International (SII) is up $1.45 to $29.60 and 13.3K Nov 32 calls traded, compared to open interest of zero. The top trade is 1,111 contracts at the offer for $1.20 on the CBOE. 75 percent of the volume in the Nov 32 calls hit ask-side. Similarly, ISEE data indicate that 74 percent of the SII calls traded on the ISE today, or 3,099 contracts, are opening customer buyers. No headlines on the Houston-based oil driller. Implied volatility (average) is 47.7 (-1.1), compared to 52-week high and low of 123 and 46.

Bearish Flow

BJ's Restaurants (BJRI) is seeing unusual activity. Shares have been under pressure throughout the session and were recently down 91 cents to $15.43. Meanwhile, options activity picked up to 64X the average daily and most of the activity is concentrated in the Nov 15 puts. 4160 traded, with two thirds hitting ask-side and open interest of only 10 contracts. ISEE data confirm that customers are buying to open and BJRI implied volatility is up to 48, from about 45 late Monday. No headlines to explain the bearish flow.

Implied Volatility Movers

Tellabs (TLAB) calls have been busy for the past four days and the action continues Tuesday. Shares are up 14 cents to $7.58 and touched a new 52-week high. Options volume is running 3X the average daily, with 9188 calls and 359 puts traded. In addition, implied volatility (average) is running up to 66, from 58 yesterday and 46 a week ago.

Implied volatility is also higher THQ Inc. (THQI), MBIA (MBI), and Ambac (ABK). Implied volatility is easing in Carnival Corp. (CCL), ConAgra (CAG), and the S&P 500 Index (SPX).

Comments

[Iamtuff:]

"Oct 2.5 calls are leading the flow, with 11.4K traded, 69 percent hitting ask-side."

Hi, I'm just wondering where do you find out which option hit the bid or ask side?

Sep 22 08:47 PM