Wednesday Options Recap

by: Frederic Ruffy


The major averages are mixed in relatively slow trading Wednesday. Economic data was in focus early after ADP reported that the US economy lost 84,000 jobs in December, the least amount since May 2008. The number was a bit better than the 90,000 drop economists had expected. In addition, November numbers were revised to -145K from -169K. Stock index futures edged a bit higher in pre-market trading on the news.

Then, at 10:00 a.m. eastern time, attention turned to the ISM Services Index. The gauge of economic activity outside of manufacturing improved to 50.1 in December, up from 48.7 in November and a bit less than the 50.5 economists were expecting.

Yet, the economic data didn't move the market much and, instead, the major averages seemed to find modest support from benign words from the Federal Reserve. To be specific, minutes from the latest FOMC meeting were released Wednesday afternoon and the Fed basically rehashed the same old "concerns about the weak market", "more stimulus might be needed," "blah, blah, blah." No surprises and major averages edged higher.

The S&P 500 has traded in another narrow 6-point range and is flat heading into the final forty minutes of trading. The CBOE Volatility Index (.VIX) lost .35 to 19.00. Trading in the options market is active, with about 5.1 million puts and 8.5 million calls traded so far (a ratio of .60, compared to a 22-day average of .65.)

Bullish Flow

JA Solar (NASDAQ:JASO) is up 39 cents to $6.72 and call volume is outpacing put activity by a ratio of roughly 10-to-1. 8,060 calls traded so far, with Jan, Feb, Mar and Jun 7.5 calls among the most actives. Looks like speculative call buying after Oppenheimer raised earnings estimates on JASO and a number of other Chinese solar stocks, saying fourth and first quarter guidance will prove stronger than seasonal.

Origin Agritech (NASDAQ:SEED) is up 22 cents to $13.18 and Jan calls are seeing interest amid renewed takeover chatter. SEED action saw similar activity on Dec 16. Today's twist mentions Monsanto (NYSE:MON) as a possible bidder. It's unsubstantiated, but has triggered a reaction in the options market, with some players buying Jan 14 and 15 calls, lifting implied vols about 10.5 percent towards 104.

Bearish Flow

Bearish activity detected in Kinetic Concepts (NYSE:KCI), with 6863 puts trading, or 42x the recent avg daily put volume. Shares are down 30 cents to $39.40 and looks like buyers of Mar 35, June 35, and Mar 30 puts. Implied vols (average) climbing about 4 percent to 41. No news on the San Antonio medical equipment maker today. Shares gapped higher and rallied to a new 52-week high on a Wells Fargo upgrade yesterday.

Implied Volatility Movers

Gilead Sciences (NASDAQ:GILD) shares are up $1.64 to $44.90 and implied volatility is easing on positive results from an HIV combination therapy. The company said today that, along with Truvada and an experimental compound called elvitegravir, their new drug candidate GS 9350 appeared effective in treating HIV. Options volume is 3X the normal on the news, with 35K calls and 17K puts traded. The top trade is 1000 Feb 45 puts on the bid, or $2.30 per contract. Indeed, it looks like premium sellers are dominating the action, as implied volatility has fallen more than 6 percent to 22.2.

Unusual Volume Movers

Ford Motor (NYSE:F) is seeing 3X average daily trading volume, with 250,000 contracts traded and call volume representing 56 percent of today's activity.

Select Sector Financials (NYSEARCA:XLF) is seeing 2X average trading volume, with 389,000 contracts traded and calls representing 74 percent of today's trading activity.

Microsoft (NASDAQ:MSFT) is seeing 2X normal trading volume. 139,000 contracts have traded, with call options representing about 73 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Google (NASDAQ:GOOG), the US Oil Fund (NYSEARCA:USO), and Freeport McMoran (NYSE:FCX).