Tuesday Options Recap

Sentiment

The major averages opened lower following weakness in overseas markets and, after a move back to positive territory midday, are under water again late Tuesday. Bank stocks led benchmarks lower across Europe after RBS announced plans to participate in an asset-protection plan with the UK Treasury. Lloyd's opted not to, but the concern is that some European banks are still holding bad assets.

UK's FTSE lost 1.3 percent. France's CAC 40 dropped 1.5 percent and Germany's DAX gave up 1.4 percent. Losses were suffered across the Asia/Pacific as well. Hong Kong's Hang Seng lost 1.8 percent and India's Sensex tumbled more than 3 percent.

In the US, the focus was on merger news early after Berkshire (BRK.A) made a bid for Burlington Northern (BNI), and Stanley Works (SWK) announced plans to buy Black & Decker (BDK). The BNI news triggered a 4 percent rally in the Dow Jones Transportation Average.

However, the Dow Jones Industrial Average is down 45 points heading into the final hour. Intel (INTC) is the biggest loser in the Dow after Morgan Stanley downgraded the chip sector. The tech-heavy NASDAQ is down 2 points.

Although the CBOE Volatility Index (.VIX) is down .47 to 29.31, trading remains defensive as investors get their first peek at the October jobs situation courtesy ADP's private sector report tomorrow. The conclusion of the Fed's two-day meeting on monetary policy might shake things up Wednesday afternoon. Trading is a bit lighter than usual ahead of the news. Approximately 5.2 million puts and 6.7 million calls changing hands so far (a ratio of .77, compared to a 22-day average of .82).

Bullish Flow

A number of gold miners seeing action, as gold rallies $32 to $1086 an ounce Tuesday. Bullish flow also detected in Iamgold (IAG), with 3154 calls trading, or 2x the recent avg daily call volume. IAG is up $1.38 to $14.68. Hecla Mining (HL) added 59 cents to $4.70 and options volume is 2X average daily, with 24K calls and 3680 puts traded. Bullish flow seen in Royal Gold (RGLD), with 4330 calls trading, or 2x the recent avg daily call volume. RGLD is up $2.89 to $47.39. Barrick Gold (ABX), the largest gold miner, added $2.52 to $39.03 and 67K calls (25K puts) traded so far.

Union Pacific (UNP) is up $3 to $58.06 after Berkshire's buyout of Burlington Northern sparked a rally in the railroad names Tuesday. UNP options activity is running 2X the average daily, with 14K calls and 7925 puts traded. The top trade was a a Jan 50 - 70 risk reversal sold 4000X on AMEX. The strategist collected 60 cents (sold puts) and the position was tied to shares at $58.05 (128K). Meanwhile, Nov 55 and 60 calls are actively traded as well.

Bearish Flow

Wells Fargo (WFC) is down 17 cents to $27.44 and the Jan (2010) 21 - 26 (2X1) put ratio spread is bought at 54 cents, 35000X! It is possibly a roll down of short puts, but more likely an opening spread with a max pay-off if WFC falls to $21 by mid-Jan 2010.

Implied Volatility Movers

Call buyers are active in Osiris Therapeutics (OSIR) ahead of earnings. Shares have been getting slammed lately, down 60 cents to $5.45 and a new 52-week low today. OSIR is down 62.7 percent since the end of August. Meanwhile, implied volatility (average) is up to 160 (+24) ahead of earnings, tomorrow before the bell.

Implied volatility is also higher in Wells Fargo (WFC), MEMC (WFR), and ActivisionBlizzard (ATVI). Meanwhile, implied volatility is lower in Etrade Financial (ETFC), Mastercard (MA), and Archer Daniels Midland (ADM).