Thursday Options Recap

Sentiment

Stocks have bounced back from early losses and are trading mixed late Thursday. The table was set for weakness after Citi (C) and Goldman Sachs (GS) slipped on earnings news. While both reported profits and revenues that beat Street expectations, shares slipped as some of the good news might have been already discounted during the latest market rally. It was buy the rumor, sell the news.

Meanwhile, the day's economic news was mixed. Before the start of trading in New York, the Labor Department reported that the Consumer Price Index [CPI], a gauge of inflation at the consumer level, rose .2 percent, which is in-line with expectations..

Separately, the Labor Department said that weekly jobless claims fell by 7,000 to 514,000 last week. Economists were looking for a smaller 1,000 decline. While the weekly jobless claims were a bit better-than-expected and the CPI was in-line, stocks faltered in morning trading after the latest Philadelphia Fed Survey fell short of expectations. The gauge of regional manufacturing activity fell to 11.5 in October, down from 14.1 in September and below economist estimates of 12.0. The Dow Jones Industrial Average fell into the red on the news.

However, the selling never gathered any real momentum and, instead, trading turned mixed late in the day. The Dow Jones Industrial Average is up 8 points and the NASDAQ is down 4.3. Meanwhile, trading in the options market is active due to the expiration, with approximately 6 million puts and 9.2 million calls traded so far (a ratio of .65, compared to a 22-day average of .75).

Bullish Flow

IBM grabs the spotlight later today. Analysts expect the computer maker to report a quarterly profit of $2.38 per share. IBM reported $1.98 in the previous quarter, which trounced analyst estimates by 16 cents. In the past four quarters, the co. beat Street estimates by an avg. of more than 12 cents. For that reason (and due to the fact that Intel (INTC) rallied on earnings yesterday) sentiment seems upbeat heading into the news. Although IBM is down $1.50 to $126.85, the top trades of the day include 5000 Oct 130 - 135 call spreads bought for 80 cents. 71K calls and 25K puts now traded — 2X the avg daily.

Western Refining (WNR) has been rallying along with the other refiners (TSO, VLO, FTO, HOC, SUN) after crude oil inventory data showed a larger than expected drop in refinery utilization rates. WNR is up 59 cents to $6.78 on heavy volume and trading near session highs. In the options market, sentiment seemed somewhat bearish early amid increasing interest in Mar 2.5 puts, gulp. The top trade is 707 contracts for 15 cents on the ISE, which is an opening customer buyer, according to ISEE data. 3,000 traded in morning action. Since then, trading has picked up in the Dec 7.5 calls, with 1,293 and 73 percent hitting ask-side.

Bearish Flow

AMEDISYS (AMED) is down $2.59 to $42.25 and options volume is running 20X the expected for mid-morning trading, with 11K puts and 6170 puts traded. Shares are under pressure and trading is brisk in Oct and Nov puts and calls (with strike prices ranging from 30 to 50). Implied volatility is moving as well. Average IV in AMED is up to 61.2, from about 54.5 late yesterday.

Implied Volatility Movers

CBOE Volatility Index (VIX) is easing, down 1.19 to 21.67, as quiet trading continues. Although the S&P 500 is flat, the index has traded in a narrow 8 point range today and SPX 20-day historical volatility is only 17 percent, well below the VIX. So, perhaps one reason VIX is suffering its ninth consecutive loss is due to the fact that actual levels of volatility remain low. The options expiration and the anticipation of mixed trading during the earnings reporting season might be factors as well.

Implied volatility is also lower in Goldman Sachs (GS), Citi (C), and Google (GOOG). Implied volatility is running higher in Seagate Tech (STX), Vulcan Materials (VMC), and Motorola (MOT).

Comments

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2009 Oct 15 04:52 PM