Wednesday Options Recap

by: Frederic Ruffy


The major averages shrugged off disappointing economic data and have traded quietly higher in a narrow range Wednesday. Data released before the opening bell showed November personal spending and incomes increasing 0.5% and 0.4%, respectively; which was below economist estimates of +0.7% and +0.5%.

Separate data released about 30 minutes into the trading session showed new home sales rising at an annual rate of 355,000 in November, down from 400,000 in October and well below estimates of 438,000. Meanwhile, the University of Michigan slumped to 72.5 in December, from 73.4 last month and also below economist estimates of 73.8.

Yet, while the major averages dipped into the red on the economic data, the selling never gathered momentum and, instead, the Dow Jones Industrial Average is up 6 points in light volume, pre-holiday action. With an hour left to trade, the CBOE Volatility Index (.VIX) is up .10 to 19.64. Trading in the options market is slowing as well, with approximately 3.7 million puts and 5.7 million calls traded so far (a ratio of .71, compared to a 22-day average of .70.)

Bullish Flow

Electronic Arts (ERTS) rose 25 cents to $17.32 Wednesday morning and saw some speculative call buying in early action. During the first hour, 5,730 Jan 17.5 calls traded (58 percent ask-side). Another 2,920 Jan 19 calls traded (95 percent ask-side). No headlines on the software and video game maker. Implied vols are edging about 1 percent higher, to 36.

Patriot Coal (PCX) is up $1.65 to $16.35, a new 52-week high, and options action is heating up as well. 9,450 calls and 2,040 puts traded. Most of the action is in the Jan 2010s (14s, 15s, and 16s). No news on the stock, but there must be some reason for the relative strength in the shares. The Market Vector Coal Fund (NYSEARCA:KOL) is up 64 cents to $36.18.

Bearish Flow

Bearish flow is detected in Dublin, Ireland medical instruments maker, Covidien (COV). Shares are up 94 cents to $48.58 and 3,860 Jan 45 puts traded. The top trade is 1,290 contracts at 20 cents on ISE, which is an opening buyer, according to ISEE. Looks like buyers of Feb 45 and Jan 47.5 puts as well. 4,895 puts and 1,225 calls traded total, or about 5X average daily volume for COV. Implied vols (average) approaching 25, from about 23 late yesterday. No headlines today. Earnings due out Jan 20, a few days after the expiration.

Implied Volatility Movers

Amylin Pharmaceuticals (AMLN) is down $1.10 and options order flow is bearish on talk of a negative Citi research not related to FDA approval letter for monotherapy use of Byetta. Shares are down and options volume is 3X the average daily, with 13,000 puts and 1,530 calls traded. Jan 10, 12.5 and 15 puts are seeing brisk trading and implied volatility is moving into the triple digits, from about 67 percent the day before.

Unusual Volume Movers

Ford Motor (NYSE:F) is seeing 2X average daily trading volume, with 131,000 contracts traded and put volume representing 64 percent of today's activity.

Micron Technology (NASDAQ:MU) is seeing 2X average trading volume, with 69,000 contracts traded and calls representing 70 percent of today's trading activity.

MGM (NYSE:MGM) is seeing 3X normal trading volume. 65,000 contracts have traded, with call options representing about 78 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Pulte Homes (NYSE:PHM), eBay (NASDAQ:EBAY) and Sandisk (SNDK).