Tuesday Options Recap

by: Frederic Ruffy


Stocks opened lower after the latest round of earnings and economic news failed to spur another round of buying interest in the equity market Tuesday morning. Dow component Home Depot (NYSE:HD) slid at the open after the home improvement retailer reported better-than-expected earnings for the most recent quarter, but offered only in-line guidance for the full year. Target (NYSE:TGT), JC Penney (NYSE:JCP), and SunPower (SPWRA) are also seeing post-earnings weakness.

Meanwhile, the day's economic news included a weaker than expected Producer Price Index (+.3 percent vs. .5 percent consensus) and a disappointing read on industrial production (+.1 percent vs. +.4 percent consensus).

The major averages opened lower on profit-taking and market action has been uninspired throughout most of Tuesday's trading session. With about an hour left to trade, the S&P 500 is down 1.2 points. The CBOE Volatility Index (.VIX) edged down .26 to 22.63. Trading in the options market is running a bit less than usual, with approximately 4.4 million puts and 6.6 million calls changed hands so far (a ratio of .67, compared to a 22-day average of .84).

Bullish Flow

DirecTV (DTV) is up 36 cents and touched a new 52-week high Tuesday. Meanwhile, options volume is running 3X the average daily, with 29K calls and 8920 puts traded. One of the top trades is an apparent purchase of Jan10 29 - 32 call spreads at an average of $1.575 on PHLX, 2500X. A block of 3000 Nov 31 calls traded (mid-market) at 55 cents on NYSE and is possibly closing. A multi-exchange sweep of 2000 Dec 31 calls hit at the offer for $1.25. The activity seems to reflect some bullishness and stands in contrast to the action yesterday, when sweep buyers picked up Nov 29 puts to open new positions. No headlines today. A filing disclosed yesterday showed a director sold 330,000 shares at $28.50 - 28.81 on 11/9.

Sara Lee (SLE) is up 16 cents to $12.14 and touched a new 52-week high on reports SC Johnson has joined the bidding for SLE's air-freshner unit. The deal could fetch more than $700 mln, but could be weeks away (Wall St. Journal). In the options market, some investors appear to be looking for a good news by mid-December and are active in the Dec 12.5 calls, with 1112 traded and 98 percent hitting ask-side. ISEE data confirm that investors are buying-to-open new positions in SLE calls.

Bearish Flow

Direxion Small Cap Bear 3X ETF (NYSEARCA:TZA) is down 10 cents to $11.29 and more than 25K Nov 11 calls traded vs. 7440 of open interest. Seems like some investors are bracing for potential volatility in the days ahead. These options come off the board at the end of this week. At current prices, have about 25 cents of time value remaining.

Implied Volatility Movers

Isis Pharmaceuticals (ISIS) shares are down $1.80 to $11.60 and implied volatility is screaming higher after the co. announced positive results from its experimental cholesterol drug, but then said that it will seek US, EU approval in mid-2011. Previous expectations had been for a 2010 filing. Options activity is running 10X the normal and average implied volatility is running up to 100 percent, from about 75 percent late yesterday.

Implied volatility is also higher in Pacific Sun (NASDAQ:PSUN), Ciena (NASDAQ:CIEN) and EMC. Meanwhile, implied volatility is falling in Home Depot (HD), SINA, and Saks (NYSE:SKS).

Unusual Volume Movers

Poniard Pharmaceuticals (NASDAQ:PARD) is seeing 4X average daily trading volume, with 135,000 contracts traded and call volume representing 51 percent of today's activity.

Ford Motor (NYSE:F) is seeing 2X average trading volume, with 197,000 contracts traded and call volume representing 69 percent of today's trading activity.

Potash (NYSE:POT) is seeing 2X normal trading volume. 100,000 contracts have traded, with calls representing 61 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Bristol Myers (NYSE:BMY), Vodaphone (NASDAQ:VOD), and Lowe's (NYSE:LOW).