Thursday Options Recap

Sentiment

The major averages are deep in the red Thursday, as the historically volatile month of October kicked off with a bang. Two days of disappointing jobs data is partly to blame. A report released before the opening bell on Wall Street showed weekly jobless claims increased by 17,000 to 551,000 last week, which was significantly worse than the 1,000 increase economists had predicted. The news comes the day after ADP reported the economy lost a worse-than-expected 254,000 jobs in September and the day before the Labor Department releases key monthly jobs data Friday morning.

The day's other economic numbers were mixed. Data on personal incomes / spending, pending home sales, and construction spending all exceeded economist estimates. However, the ISM Index, a gauge of manufacturing activity nationwide, showed a decline to 52.6 in September; which was not much changed from the 52.9 in August, but also below economist estimates of 54.0.

The focus seemed to be on the disappointing jobs and manufacturing numbers and the underlying tone of the market action is poor. Investors appear to be taking a glass "half empty" view of the current economic conditions and, as a result, the major averages are under water for a sixth time in seven trading sessions.

The Dow Jones Industrial Average is down 153 points heading into the final hour. The NASDAQ is reeling for a 53 point loss. The CBOE Volatility Index (.VIX) jumped 2.06 to 27.67. Trading in the options market is active and clearly more defensive. Approximately 6.35 million puts and 6.27 million calls traded so far (a ratio of 1.01, compared to a 22-day average of .78).

Bullish Flow

Hershey's (HSY) saw a spike beginning about 13:40 eastern time and was recently up 45 cents to $39.31 amid heavy call activity. 9,495 contracts traded, compared to 675 puts. Recent trades include a sweep of 1,279 Oct 40 calls at the offer for 70 cents. 4,193 now traded. Oct and Nov 45 calls are seeing interest as well. No headlines yet, but the action hints at something pending. Implied volatility (average) is 29, from about 27.5 yesterday.

Big Prints in the iShares MSCI United Kingdom Index Fund (EWU) Thursday after a strategist paid 90 cents for the Jan10 15 - 18 (1X3) call ratio spread, 11000X. The spread was tied to a block of 330K EWU shares at $15.28 (-.23).

Bearish Flow

iShares DJ US Home Construction Index Fund (ITB), an ETF that holds Lennar (LEN), Toll Brothers (TOL), Home Depot (HD) and other companies involved in homebuilding and home improvement, is down 33 cents to $11.98. Options volume is running 11X the average daily, with sellers of 4,001 April 12.5 calls leading the flow. Open interest is 4,061 and this premium seller might be throwing in the towel on hopes for a rally in the sector given the poor reaction to today's pending home sales. ITB is down, even after the data showed an unexpected increase of 6.4% in August vs. 1% economists' forecasts.

Implied Volatility Movers

RadVision (RVSN) is down $2.86 to $6 after Cisco (CSCO) announced plans to buy rival Tandberg, RadVision's biggest competitor. Cantor Fitzgerald says the acquisition is a negative for RVSN because it puts its Cisco-based revenue stream at risk. Cisco is RadVision's biggest customer. Shares are getting pummeled and options volume in RVSN is running almost 200X the average daily. Meanwhile, implied volatility (average) in RVSN is rallying to 88, from less than 50 yesterday.

Implied volatility is also higher in the Intercontinental Exchange (ICE), Red Hat (RHT), and Fifth Third (FITB). Implied volatility is lower in Gigamedia (GIGM), Constellation Brands (STZ), and CIT.

Comments

[TonyNed:]

Interesting call action in MOS. 3x the open interest traded for the $20 strike price.

Oct 01 10:09 PM