Tuesday Options Recap

Sentiment

Stocks are trading mixed in a day of relatively quiet market action Tuesday. After a 124-point gain Monday, the Dow Jones Industrial Average opened a bit higher with help from better than expected home price data. The Case-Shiller Housing Price Index, released before the start of trading Tuesday, showed a decline of 13.3 percent for July, which follows a 15.4 percent drop in June and compares to economist estimates of -14.2 percent.

However, the early advance proved short-lived after a separate report, released thirty minutes into trading, showed an unexpected decline in September consumer confidence. According to the Conference Board's index, consumer confidence slipped to 53.1 this month, down from 54.5 in August and well below economist predictions of 57.00. The Dow slipped into the red on the news.

A sell-off never materialized and, with not much other news to guide the market, the major averages are chopping around aimlessly heading into the final hour of trading. The Dow Jones Industrial Average is down 23 points and the NASDAQ is off 2.8. The CBOE Volatility Index (.VIX) edged down.06 to 24.82 and options volume is on the light side, with approximately 4.2 million puts and 5.6 million calls traded so far (a ratio of .75, compared to a 22-day average of .78).

Bullish Flow

Call buyers resurfaced in Houston-based electric utility Dynegy Tuesday. DYN saw active trading amid deal chatter Thursday and Friday last week. Today, shares saw a spike on heavy volume to $2.63 and are up 7 cents to $2.47. Total options volume is running 6X the average daily. 12K calls and 260 puts traded. The action includes 3,486 Oct 2.5 calls (66% offerside), 2,785 Nov 2.5 calls (78% offerside), and 2,214 Jan10 5 calls (69% mid-market/25% ask-side). Average implied volatility, meanwhile, is rallying to 128, from about 97.2 late yesterday.

Two similar spreads in Las Vegas Sands (LVS) and MGM (MGM) in recent trade. LVS is down 2 cents to $17.72 and a strategist sold the Oct - Nov $20 put spread for 85 cents, 5000X, which appears to be a roll out of the Oct 20s. MGM is down 18 cents to $12.52 and the Oct - Nov 15 put spread is sold for 45 cents, 10000X, which also appears to be a roll. So, in both cases, it appears that the strategist is left holding short ITM puts, possibly betting that LVS will move beyond $20 and MGM above $15 by the Nov expiration.

Bearish Flow

Nokia (NOK) is down 40 cents to $14.84 after the threat of Vodaphone's announced iPhone in Europe raised concerns about competitive pressures for Nokia. Recent options trades include a sweep of 10K Oct 15 calls at the offer for 65 cents. 13.65K now traded, with 86 percent hitting ask-side. Meanwhile, puts are active as well. Shortly after the calls were swept, two sweeps (of 7,453 contacts traded and 3,420) Oct 15 puts traded ask-side for 85 and 90 cents. 18K puts and 18K calls now traded on Nokia, or about 4X the expected for midday.

Implied Volatility Movers

Moody's (MCO) is up $2.27 to $21.05 and attempting to recover after an 8-day 27.6 percent swoon. Options trading remains brisk, with another 27K puts and 21K calls changed hands today. Some players are likely selling puts to close positions as the stock bounces. Looks like calls are being sold. For example, 4,291 Oct 19 calls traded and 79% hitting bid-side. Implied vols (average) easing back to 76, from about 79.1; but still higher than the readings below 50 in mid-September before the WSJ ran a story saying an ex-Moody's analyst claimed that the credit rating agency is still using inflated ratings.