Wednesday Options Recap

Sentiment

Stocks are trading higher after the Federal Reserve concluded its latest FOMC meeting and signaled no real changes to their ultra low interest rate policy. Some investors were concerned the Fed would signal a tighter stance and remove the phrase "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period," from the post meeting text. But, they didn't.

After the typical knee-jerk reaction, the major averages found some support about 15 minutes after the statement was released and the Dow Jones Industrial Average is up 125 points heading into the final forty-five minutes of trading. The NASDAQ added 13.

The CBOE Volatility Index (.VIX) is down 1.70 to 27.11 and has fallen from 30.69 late Friday now that a lot of this week's "event risk" has passed. However, payroll data Friday has market moving potential as well. Meanwhile, trading in the options market is active and becoming much less defensive. Approximately 5.4 million puts and 7.1 million calls changing hands so far (a ratio of .77, compared to a 22-day average of .80).

Bullish Flow

From Wednesday morning action: The PowerShares DB US Dollar Index Bullish ETF (UUP) is down a dime to $22.58 and more than 105K Nov 23 calls traded. The action includes multi-exchange sweeps hitting at the offer for 15 cents. Data is consistent with non-customer or firm buyers. Open interest is 40.3K. So, this looks like fresh positioning. It comes ahead of the FOMC rate announcement this afternoon. On Sep 23, at the conclusion of the last meeting, stocks sold off after the Dow had risen 5.6 percent in the three weeks prior. The decline on Wall Street helped lift UUP modestly. It finished UUP 10 cents to $22.70 and then added another 22 cents, to $22.92, in the four days that followed.

BofA (BAC) is up 40 cents to $15.20 and trading in the options market is brisk Wednesday morning, with 84K calls and 30K puts traded in the first 40 minutes. One player bought a block of 17.6K Jan 2010 $16 calls at $1.09 apiece. 20.5K now traded. Nov 16 and 17.5 calls are actively traded as well. No news on the bank today. The company presents tomorrow at a BankAnalysts Assoc. of Boston Conference.

Bearish Flow

Bearish activity detected in M&T Capital (MTB), as shares of the Buffalo, NY regional bank display relative weakness Wednesday. MTB is down $1.26 to $61.46, falling to session lows, and 5986 puts traded, or 6x the recent avg daily put volume. One player paid $1.675 for Dec 50 - 60 (2X1) put ratio spread, 1000X. Nov 65 and 70 puts are seeing interest as well. No headlines on the stock today. Next earnings expected in mid-Jan

Implied Volatility Movers

Cisco Systems (CSCO) is up 39 cents to $23.30 and 170K CSCO options traded ahead of earnings(65 percent calls). The top trade includes 7500 Dec 22 put/Jan 26 call risk reversal at 22 cents (sold puts) in a position tied to shares on a 52 delta. Another investor apparently bought Nov 21 - 22 (2X) put ratio spread, 2000X, at 3 cents. Overall, sentiment seems mixed heading into the news, but CSCO doesn't surprise much and therefore, not much volatility is expected. The company beat by 2 cents last quarter and posted in-line results in the prior quarter. For that reason, a skew between the Nov (36.2 percent) and Dec (32.8 percent) hints at a relatively modest 95-cent earnings gap move, or 4 percent, when CSCO reports after the bell.

Comments

[TonyNed:]

The UUP chart sure looks like it has turned down to clear an overbought condition. That call activity doesn't seem to be well timed.

Nov 04 07:20 PM