Monday Options Recap

Sentiment

The major averages are trying to bounce back from steep losses suffered Friday and were helped higher in morning trading by better-than-expected economic news. The ISM Manufacturing Index, released at 10:00 eastern time, showed a surprise uptick to 55.7 in October -- which was up from 52.6 in September and better than the 53 economists had predicted. Separate data on construction spending and pending home sales, also released at 10:00, improved more than economists had expected as well.

Yet, after the initial positive reaction to the data, the major averages gave back the gains, as the bearish underlying tone continues. The Dow Jones Industrial Average, which hit a high of 9,859, was under water by midday and up 38 points to 9,751 heading into the final hour. The tech-heavy NASDAQ is down 3 points after Citi analysts whacked PALM and Research In Motion (RIMM) with Sell ratings.

Meanwhile, the CBOE Volatility Index (.VIX) has been all over the map -- falling to 28.07 early before bouncing back to multi-month highs of 31.84. VIX is down .25 to 30.44. Trading in the options market is active, with 7.1 million puts and 7.1 million calls changing hands so far (a ratio of 1.00, compared to a 22-day average of .28).

Bullish Flow

Big Print in Etrade (ETFC). Shares of the online broker are off a dime to $1.36 and somebody sold 95K Jan 1 puts for an average of 5.5 cents on AMEX. 95.8K now traded vs. 146.3K of open interest. So, the put sale might close an existing position. The trade coincided with a Reuters report that Etrade withdrew its application to participate in CPP Under Emergency Economic Stabilization Act. The broker cites funding from capital raising activities and less debt.

SPDRs (SPY) added 91 cents to $104.47 through mid-morning Monday and noteworthy trades include a Jan (2010) 110 - 114 call spread, bought at $1.12, 20000X on CBOE. That is, they paid $2.04 to buy the Jan 110 calls and collected 92 cents for the 114s, paying a net debit of 2.04 - .92 = 1.12. The potential payoff (excluding commissions) is $2.88 if the SPYders Jump to $114 (9.1 percent) or more by the January 2010 options expiration.

Bearish Flow

Bearish activity detected in Kohls (KSS), with 5996 puts trading, or 2x the recent avg daily put volume. Shares are up 30 cents to $57.52 and traders are shopping for Nov 55 puts. 5,200 changed hands and ISEE data (at 2793 contracts or 85 percent of the puts traded on the ISE) point to active opening put buying Monday morning. Implied volatility (average) is edging up to 41.1, from about 40 late Friday. The action comes ahead of same store sales numbers Thursday.

Implied Volatility Movers

Palm (PALM) implied volatility jumped after Citi cut their rating on the stock to Sell from Neutral. Shares are down 48 cents to $11.13 and implied volatility in PALM options jumped to 90 percent, from about 84 percent late Friday.

Implied volatility is also higher in Wells Fargo (WFC), Research In Motion (RIMM), and LDK Solar (LDK). Meanwhile, implied volatility is lower in Ford Motor (F), Human Genome Sciences (HGSI), and Vertex Pharmaceuticals (VRTX).

Comments

[JamesApple]

October has historically been black days for stocks. With little more than 40 days from Christmas Rim has very little to show in sustaining its business in the future. I would not be surprised if Rim share price drops by more than the 22% loss Rim suffered in September and October so far.

2009 Nov 02 03:53 PM

[User 67863]

What were the earnings RIMM just announced wasn't it like 4 billion? Their subscriber count is huge, their security for business users is unmatched. The storm is not bad but their Bold is great. Their P/E is not bad - and again they are earning great revenue - OK, what am I missing, Android Hype for an unproven phone, Apple coolness for the consumer? Where's the business consumer in all of this?

2009 Nov 02 04:14 PM

[TonyNed]

Bad timing on the RIMM call. The stock looks like it short term bottomed today. It looks like a safe short term long.

2009 Nov 02 04:57 PM

[JamesApple]

Companies do not survive on prior performances, they survive on their ability to sell for profits, ability to compete for customers, and enough market share to sustain company operations.

In all three factors Rim is failing alarmingly. Rim's margin has deteriorated steadily with a weaker forecast for profitability. Rim's inability to compete against iPhone has prompted Verizon to introduce campaigns to promote the Motorola Droid, a magnificent smartphone built on the proven industry leader Google Android. Verizon directly contributes to 28% of Rim's revenue, any decrease in Verizon demand for blackberrys translate to the bottom line of Rim's businesses which indeed do look more bleak and precarious every day. You cannot buy new blackberrys from Rim if it is bankrupt and out of business.

2009 Nov 02 04:57 PM

[JamesApple]

Rim is going to be another Nortel.

Rim is getting beat by Apple this Christmas/New Year, and by Google Android also after. There are no doubts, short or long term.

2009 Nov 02 06:00 PM

[TonyNed]

I love getting thumbs down when I nail calls like the RIMM short term bottom.

Watch Goldman at about 12:30. I think it starts to make a decent rally.

2009 Nov 03 11:42 AM