Tuesday Options Recap

Sentiment

Stocks are holding gains, amid strength in some commodities and optimism for the third quarter earnings reporting period. Many of the energy, metals, and mining names saw gains after crude oil rose 55 cents to $70.96 a barrel and gold rallied $20 to $1037.80 an ounce. Meanwhile, Alcoa (AA) is up 3.4 percent to $13.88 and the best gainer in the Dow Jones Industrial Average ahead of earnings. Alcoa unofficially kicks off the earnings reporting season tomorrow after the closing bell.

With no economic data on the calendar, investors don't have much other news to work with Tuesday and the bullish underlying tone from Monday's session seems to have carried forward to Tuesday's trading. The Dow is up 100 points heading into the final hour. The CBOE Volatility Index (.VIX) slipped .95 to 25.89. Trading in the options market is much more active than Monday, with approximately 5.13 million puts and 7.80 million calls traded so far (a ratio of .66, compared to a 22-day average of .79).

Bullish Flow

Alcoa (AA) is up 3.4 percent to $13.88 and options volume is 2X the average daily ahead of tomorrow's earnings. 126K contracts traded midday and 70 percent of the activity is on the call side of the options chain. The top trades: a bullish Oct 14 - 16 call spread, along with Oct 12.5 puts, where a strategist apparently paid 33 cents to buy the spread, sell puts, 4320X. 23.8K Oct 14 calls now traded.

Yamana Gold (AUY) is up 96 cents to $11.37 and among the winners in the gold mining sector Tuesday. Recent options trades in AUY include an Oct 10 - Nov 12 (1X2) call diagonal spread, where an investor sold 5000 October 10 calls while buying 10K Nov 12 calls. The trade might roll out a position from October into a position (twice the size) in November 12s. 50K AUY options contracts have traded total, and 91 percent of the volume is on the call side of the options chain.

Bearish Flow

Ciena (CIEN) is down 87 cents to $13.30 and falling to session lows. Shares have now suffered a nasty 4-day 18.3 percent decline and the slide seems to have stirred up some put activity in the options pits. More than 10K Nov 14 puts traded today. The top trade is 1,447 contracts at the offer for $1.25 on the ISE, which appears to be an opening non-customer buyer. Open interest is only 665 contracts. Reuters reported yesterday that Ciena is in negotiations to buy optical and carrier ethernet assets of Nortel's Metro Ethernet Networks biz.

Implied Volatility Movers

What a difference two days make. The CBOE Volatility Index (.VIX), which hit a high of 29.56 and its best levels in a month Friday, is down 1.00 to 25.84. Meanwhile, 5.13 million puts and 7.79 million calls traded so far today, a ratio of .66. By way of comparison, the ratio hit 1.14 (8 million puts and 7 million calls) after the 8-day market slide stirred up increasing numbers of bearish bets and hedges by Friday, October 2.

Implied volatility is also lower in BofA (BAC), Mosaic (MOS), and Pepsi Bottling (PBG). Meanwhile, implied volatility is higher in EMR (EMR), United Therapeutics (UTHR), and St. Jude Medical (STJ).