Tuesday Options Recap

by: Frederic Ruffy


Stocks are trading modestly lower, as investors brace for this week’s “event risk”. After several days of slow news on the economic front, investors get data on retail sales and import/export prices Wednesday morning. Minutes from the latest FOMC meeting come into focus Wednesday afternoon.

The earnings calendar is picking up as well. Intel (NASDAQ:INTC) is due to report after the closing bell and JP Morgan (NYSE:JPM) releases Wednesday morning. Johnson & Johnson (NYSE:JNJ) is down 2.4 percent and the biggest loser in the Dow Jones Industrial Average Tuesday after investors expressed disappointment with JNJ’s revenue numbers.

However, trading is quiet and the Dow Jones Industrial Average has traded in a narrow 80 point range. The Dow is down 15 points heading into the final forty-five minutes of trading. The CBOE Volatility Index is flat at 23.02. Trading in the options market is running about the normal levels. Approximately 4.9 million puts and 6.7 million calls traded so far (a ratio of .73, compared to a 22-day average of .77).

Bullish Flow

Eyes will be on Intel (INTC) after the bell, as the world’s largest chipmaker releases its third quarter earnings report. Analysts expect the chipmaker to post 27 cents per share for the third quarter; up 2 cents from last year, but down a penny from the Q2. Sentiment seems upbeat heading into the news. Although the NAZ is down 3 points, Intel hit a new 52-week high today and is unchanged at $20.40. Meanwhile, an impressive 244K calls have traded on Intel so far, compared to 98K puts. Implied volatility (average) is near 38 (+1.7) and an IV skew between Oct (67.2%) and Nov (36.9%) hints at a potential earnings gap move of 98 cents, or almost 5%, when Intel reports after the close.

Bearish Flow

The top trade in the options market today is a lot of 50K Powershares QQQ (QQQQ) Jan10 43 puts for $2.29 on the ISE. It hit around 12:30 and coincided with a block of about 45K QQQQ Jan10 43 puts for $2.29 on the ISE. Both were opening customer buyers, according to sentiment data, and appear to be part of a purchase of 100K contracts ahead of Intel’s (INTC) earnings after the closing bell. INTC is currently the 8th largest component in the Qs and accounts for 2.6 percent of the portfolio. Implied vols in the QQQQ, using the QQV index, is up .22 to 22.54 on the day.

Implied Volatility Movers

Vanda Pharmaceuticals (NASDAQ:VNDA) is up 27 cents to $11.72 and implied volatility is crashing down after the co. announced a license agreement for commercialization and development of Fanapt in Canada and the US for treatment of schizophrenia. Options volume is running 7X the average daily on the news, with premium sellers (Jan 15, Nov 17.5, and Oct 12.5 calls) leading the flow. Implied volatility (average) in VNDA is down to 80, from about 119 late Monday.

Implied volatility is also lower in J&J (JNJ), Starent (STAR-OLD), and YRC Worldwide (NASDAQ:YRCW). Implied volatility is running higher in Intel, Akamai (NASDAQ:AKAM), and STEC.

Unusual Volume Movers

Intel (INTC) is seeing 4X average daily trading volume, with 374,000 contracts traded and call volume representing 70 percent of today’s activity.

Barrick Gold (NYSE:ABX) is seeing 2X average trading volume, with 64,000 contracts traded and call volume representing 79 percent of today’s trading activity.

Acorda Therapeutics (NASDAQ:ACOR) is seeing 5X normal trading volume. 84,000 contracts have traded, with calls representing about half of today’s volume.

Unusual volume (two times or more than normal average volume) is also being seen in Yum Brands (NYSE:YUM), Nokia (NYSE:NOK), and Lowe’s (NYSE:LOW).