Monday Options Recap

by: Frederic Ruffy


Stocks are broadly higher on hopes the earnings reporting season will deliver good news for investors in the days and weeks ahead. Caterpillar (NYSE:CAT), which releases results Tuesday morning, is up 5.3 percent and leading the Dow Jones Industrial Average to a triple digit gain. Texas Instruments (NYSE:TXN) is holding modest gains and Apple Computer (NASDAQ:AAPL) is flat ahead of reports due out after the closing bell. The tech-heavy NASDAQ is up 20.

The economic calendar remains light. A report from the National Association of Homebuilders [NAHB] released Monday afternoon showed homebuilder sentiment [HMI] slipped to 18 in October, down from 19 the month before and its fist decline since June, when the gauge of industry confidence slipped to 15.

Yet, the market showed little reaction to the HMI print and, instead, the focus appears to be on earnings. The Dow Jones Industrial Average is up 105 points heading into the final forty-five minutes of trading. The CBOE Volatility Index (.VIX) is down .31 to 21.12. Trading in the options market remains active, with approximately 6.1 million puts and 7.1 million calls traded so far (a ratio of .85, compared to a 22-day average of .76).

Bullish Flow

Motorola (MOT) is up 66 cents to $8.51 and 31K calls traded on the mobile device maker Monday. The volume represents 6X the normal activity and almost 6X the number of puts (5171). The activity is focused on Jan10 and Nov calls at the $9 strike, but Jan 7.5, Jan 10, and Nov 8 calls are seeing interest as well. Implied volatility is edging up to 54, from 53.25 yesterday, and the overall flow seems to reflect a bullish short-term view on MOT — perhaps in reaction to recent news that Verizon (NYSE:VZ) is taking on Apple directly with a new ad campaign featuring an Android-based phone from Motorola called Droid.

EBay (NASDAQ:EBAY) is up 47 cents to $24.96 and the Nov 26 - 27 - 28 call fly is bought for 13 cents, 3000X. It is possibly a play on earnings (Oct 21, after market) and/or a bet that EBAY will move to between $26.13 and $27.87 by the Nov expiration (32 days).

Bearish Flow

Bearish activity was detected in Marshall and Ilsley (NYSE:MI). Shares of the Milwaukee based regional bank are down 1.9 percent to $7.22 and the focus is on Nov 7.5 puts. More than 5,000 traded vs. 1,946 in open interest. 77 percent trading ask-side and data hints at non-customer, or firm buyers. Implied volatility is edging up to 71, from just under 70 late Friday, ahead of an Oct 22 (before market) earnings release.

Implied Volatility Movers

Human Genome Sciences (HGSI) is up $1 to $20.96 on news it has secured a $750 million milestone payment from Novartis. In the options market, HGSI volume is 4X the average daily, with 36K calls and 57K puts traded. Meanwhile, implied vols (average) in HGSI, which surged (+39.5) Friday, have eased back a bit -- to 160, from about 162.5 late Friday.

Implied volatility is also lower in Gannett (NYSE:GCI), BB&T (NYSE:BBT), and Ponaird Pharmaceuticals (NASDAQ:PARD). Meanwhile, implied volatility is higher in Potash (NYSE:POT), Texas Instruments (TXN), and Hudson City Bancorp (NASDAQ:HCBK).