Tuesday Options Recap

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 |  Includes: AA, ABT, ADSK, GLD, HIG, IBKR, INTC, MGM, STEC, YRCW
by: Frederic Ruffy

Sentiment

Disappointing earnings and economic news caused an uptick in market volatility Tuesday. Alcoa (NYSE:AA) shares are down 11 percent and near session lows after the company late Monday reported quarterly earnings of one penny per share, which was a nickel shy of analyst estimates. Since AA is the first Dow stock to report fourth quarter earnings, the miss stoked some "pre-earnings" jitters and stock index futures slipped on the news.

The only economic news disappointed as well. A report from the Commerce Department released Tuesday morning showed the nation's trade deficit expanding by 9.7 percent to $36.40 billion. Wall Street was looking for $34.7 billion.

The major averages opened modestly lower and then a round of selling sent both the Dow and the NASDAQ to their worst levels by midday. However, there has been slight rebound late in the day and, with about 45 minutes left to trade, the Dow Jones Industrial Average is down 55 points and 40 points from session lows. The NASDAQ is down 32 and the CBOE Volatility Index (.VIX) jumped 1.10 to 18.65. Trading in the options market is very busy heading into the expiration later this week, with about 6.25 million puts and 9.15 million calls traded so far (a ratio of .68, compared to a 22-day average of .64.)

Bullish Flow

Hartford (NYSE:HIG) sees heavy trading, as shares jump $1.69 to $27.86 on upbeat earnings news. The insurance company sees fourth quarter profits of between $1.45 to $1.60, significantly better than the 83-cent consensus estimate. 62K calls and 15K puts traded on the news. The action includes a Jan 28 - 29 "stupid" call spread, where an investor bought both at $1.50, 2500X. Beyond that, the top trade is a block of 1200 Feb 23 calls on the bid, $5.45, which looks like liquidating a position of in-the-money calls.

STEC (NASDAQ:STEC) Jan 19 and 20 calls are busy, as shares gain 18 cents to $18.79 on takeover chatter. IBM mentioned as the interested party — Briefing. Jan 19s are the most actives, with 7316 traded (65 percent Ask) vs. 3716 in open interest. Another 4062 Jan 20 calls changed hands (45 percent Bid/37 percent Ask) vs. 6393 in open interest. Implied volatility (average) up 5 percent to about 68. STEC has had a good run over the past month, up 66.7 percent since Dec 14, but has recently faced resistance around $19. The chatter might be an attempt to lift shares beyond that level, suggesting a breakout, ahead of the expiration. (Note: with the Jan expiration approaching, we're likely to see a lot more of this in the days ahead.)

Bearish Flow

Interactive Brokers (NASDAQ:IBKR) is down 11 cents to $16.94 and put volume outpacing calls by a ratio of 10-to-1. 3,130 puts traded, or about 6X the typical volume for IBKR. Jan11 12.5 and 15 puts are the most actives, with 1914 and 607 contracts traded respectively (about 75 percent Ask). No headlines on the online broker and today's action might be positioning ahead of the company's Jan 21 earnings release.

Implied Volatility Movers

Autodesk (NASDAQ:ADSK) options volume is running 2X the average daily ahead of a presentation tomorrow (2:10 ET) at a Needham & Co. 12th Annual Growth Conference. Shares are off 18 cents to $26.07 and April 26 puts are the most actives. 8367 traded (81 percent Ask) vs. 6921 in open interest. Another 2424 Jan 25 puts traded (83 percent Ask). Some of the action might be closing, as ADSK saw heavy opening put writing on Jan 8. Nevertheless, implied vols are up to 26, +5 on the week, ahead of tomorrow's event risk.

Unusual Volume Movers

SPDR Gold Trust (NYSEARCA:GLD) is seeing 2X average daily trading volume, with 461,000 contracts traded and put volume representing about 53 percent of today's activity.

Alcoa (AA) is seeing 3X average trading volume, with 252,000 contracts traded and calls representing 57 percent of today's trading activity.

Intel (NASDAQ:INTC) is seeing 2X normal trading volume. 200,000 contracts have traded, with call options representing about 50 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in YRC Worldwide (NASDAQ:YRCW), MGM (NYSE:MGM), and Abbott Labs (NYSE:ABT).