Monday Options Recap

Sentiment

Stocks opened higher Monday after global equity markets cheered G-20 promises of additional fiscal stimulus. Equity markets moved broadly higher across the Asia/Pacific and in Europe after the Group of 20 central bankers and finance ministers agreed to "continue to provide support for the economy until the recovery is assured."

In the US, with no economic data scheduled until Thursday and no earnings of broad market significance to guide the morning action, the major averages moved higher along with overseas markets.

Metals, mining and energy names are seeing gains after gold added another $8.80 to $1104.50 an ounce. Crude oil is up almost $2 to $71.96 a barrel as Hurricane Ida eyes oil facilities in the Gulf of Mexico. Exxon Mobile (XOM) and Chevron Texaco (CVX) are among 29 Dow stocks moving higher.

Kraft Foods (KFT), which made a formal bid for UK's Cadbury, is the only Dow stock in the red and Industrial Average is up 190 points heading into the final hour. The CBOE Volatility Index (.VIX) is down .83 to 23.36. Trading in the options market is active. 5.1 million puts and 6.9 million calls changing hands so far (a ratio of .75, compared to a 22-day average of .82).

Bullish Flow

Abercrombie (ANF) is up $2.57 to $37.58 and options volume is running 2X the average daily on upbeat broker commentary Monday. Goldman Sachs upgraded ANF to its Conviction Buy list from Neutral. Credit Suisse upgraded the retailer to Outperform from Neutral on stronger than expected sales at flagship and international Hollistor sales, which makes it more likely ANF will beat Street earnings expectations. The company is due to report earnings Friday, before the bell. Shares gapped higher on the commentary today and 24K options contracts traded. Most of the action is in the front month (35, 37.5, 39 and 40 calls as well as 35 and 37.5 puts).

MBIA (MBI) is up 36 cents to $4.71 and 12K calls traded heading into earnings, today after the closing bell. Nov 4, 5 and 6 calls are the most actives. The top trade of the day is 1245 Nov 5 calls at the offer for 40 cents on the ISE. It was part of a sweep of 4413 contracts and was also an opening customer buyer, according to ISEE data.

Bearish Flow

McDonald's (MCD) is up 81 cents to 62.52 and one of 29 Dow stocks moving higher (only KFT is in the red) after the company reported a 3.3 percent increase in October same store sales. Separately, the Wall Street Journal reports that, according to a document reviewed by the WSJ, MCD plans on adding a dollar menu for breakfast starting in January.

In the options, volume is running 2X the average daily on the news, with large blocks of Dec 52.5 puts (18000) and Dec 50 puts (9600) trading ask-side at 9 and 6 cents, respectively, on the NYSE. The 52.5s have now traded 22000X and the 50s 10000X and these are possibly closing puts buys, as open interest is 32,070 and 19,485, respectively, and both contracts are now deep out-of-the-money.

Implied Volatility Movers

Ariad Pharmaceuticals (ARIA) gapped up and calls are active after JP Morgan upgraded this low-priced biotech to Overweight from Neutral. Shares are up 28 cents to $2.45 and 1610 calls traded, which represents 7X the expected activity and compares to 31 puts. Trading is scattered across Nov, Jan, Feb, and May 2.5 calls. Nov and Dec 2 calls are seeing interest as well. Implied volatility (average) is elevated at 154 percent, up from about 151 late Friday and 141 one week ago.

Implied volatility is also higher in Arvin Meritor (ARM), Air Media (AMCN), and BofA (BAC). Meanwhile, implied volatility is lower in Revlon (REV), Dish Networks (DISH), and Titanium Metals (TIE).

Comments

[TonyNed:]

The MCD put buying is interesting. It is overextended on the RSI but it's missing confirmation stochastically. I think you could wait another session or two and get a better price for the puts.

Nov 09 09:02 PM

[Options Tra...:]

Total equities put call ratio has also moved into the call inclined region but isn't overextended. The options action do support the market action today.

Nov 09 09:43 PM

[lazzybum:]

Whoever follow the bullish flow of MBI were in deep dodo.

Nov 11 01:25 AM