Wednesday Options Recap

Sentiment

Stocks opened steady on better-than-expected GDP numbers, but the early gains faded fast after manufacturing data missed to the downside. The Dow Jones Industrial Average headed higher early after a report released pre-market showed the US economy contracting at a .7 percent annual rate in the second quarter. The decline was less than the 1 percent previously reported and also better than the -1.2 percent economists had expected.

The better than expected GDP print seemed to overshadow a separate report from ADP, which showed the US economy losing 254,000 private sector jobs in September, which was more than the 200,000 economists had expected. August numbers were revised to -277,000, from an initial reading of -298,000.

However, a wave of selling pressure surfaced around 9:45 eastern time after the Chicago Purchasing Managers Index [PMI], a gauge of manufacturing activity in the Midwest, showed an unexpected drop to 46.1 in August, down from 50 in July and well below economist estimates of 52. The report carried some market moving punch because it is considered a good indicator for the ISM Index, which is due out tomorrow.

Consequently, the Dow Jones Industrial Average fell into the red on the news and, despite a midday rally attempt, is down 65 points heading into the final forty-five minutes of trading. The NASDAQ is down 9.5. The CBOE Volatility Index (.VIX) is up .67 to 25.86. Trading in the options market is active, as players square positions during the last day of trading for the third quarter. Approximately 6 million puts and 6.1 million calls traded so far (a ratio of .99, compared to a 22-day average of .78).

Bullish Flow

Huntington Bancshares (HBAN) gained 31 cents to $4.71 and calls are active after Deutsche Bank upgraded the stock to Buy from Hold. 21K calls traded so far, 3X the expected and about 9X the number of puts. Sentiment is leaning on the bullish side, with two side-traded seen in the front-month (Oct 4 and 5s), but buyers dominating the action in April 6 and Jan10 5 calls. Implied volatility (average) is up to 73.6, from 69.7 late Tuesday.

Aetna (AET) is down 25 cents to $28 and 20K Nov 31 calls traded for an average of 92.5 cents per contract. They hit bid-side and were tied to shares at $27.90 — possibly a buy-write strategy. If so, the strategist collected about 90 cents, which brings the cost basis of owning AET to $27 per share. $27 is now the breakeven. The upside is to $31, or 14.8 percent, through the November options expiration (51 days).

Bearish Flow

Valeant Pharmeuticals (VRX) is up 53 cents to $27.90 and hit a new 52-week high. Options volume is running 6X the average daily on increasing interest in VRX puts. One player bought 3,000 Dec 22.5 puts against a smaller position in VRX shares (14 delta). 3,511 contracts now traded. 4379 puts traded total, compared to 700 calls. Implied volatility (average) is 39.2 (+.4). VRX today announced plans to acquire Private Formula International, an Australian skincare company, for $69 mln.

Implied Volatility Movers

Large blocks of 75K CIT (CIT) Nov 1 puts recently bought on the CBOE for 35 cents might close some of the 200K contracts sold-to-open Friday and Monday. CIT down 80 cents to $1.40. Implied volatility (average) rallying to 275, from about 207 late yesterday.

Implied volatility is also higher in the Intercontinental Exchange (ICE), Bank of America (BAC), and the Powershares QQQ (QQQQ). Implied volatility is lower in Darden Restaurants (DRI), Nike (NKE), and Jabil Circuits (JBL).

Comments

[HipHoption:]

I think the person who bot back the CIT Nov09 1P today for 0.35, sold them on Friday at 0.125. That's just shy of a $1.7mln loss over 5 days ... Ouch ....

Sep 30 06:37 PM