Monday Options Recap

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 |  Includes: BAC, CTXS, DD, HAL, HSY, NOK, TXN, UNP, XLF
by: Frederic Ruffy

Sentiment

The major averages are holding gains on a relatively slow news day Monday. The table was set for a bounce following last week's brutal decline and amid diminishing concerns about Federal Reserve Chairman Ben Bernanke's reappointment. The major averages faltered Friday and the Dow lost 217 points after several Senators voiced opposition to Bernanke's reappointment. His first term expires Sunday.

However, the White House and a handful of others voiced support for Bernanke Monday and the talk seemed enough to ease some of anxiety about the future of leadership at the Federal Reserve.

Beyond that, the day's news held a mixed round of earnings reports and more disappointing economic data. A report released at 10:00 a.m. eastern time showed December existing home sales falling to an annual rate of 5.45 million, down from 6.54 million and also worse than the 5.90 million economists had predicted.

Yet, after a 4.1 percent tumble last week, the Dow Jones Industrial Average has been able to hold gains in relatively quiet trading. Intel (NASDAQ:INTC) is leading the Dow after receiving a positive mention in Barron's and the industrial average is up 75 points heading into the final hour. The CBOE Volatility Index (.VIX) lost 2.59 points to 24.72. Trading in the options market is slowing from Friday's brisk pace, with 5.5 million puts and 5.5 million calls traded (a ratio of 1.00, compared to a 22-day average of .68.)

Bullish Flow

Bank of America (NYSE:BAC) is up a nickel to $14.95 and the BAC Feb 14 - 17 risk-reversal trades at 17 cents, 10000X. The strategist bought puts, sold calls against a position in shares at $15. So, basically, this is a "collar". Recall that, in a collar, the strategist is buying shares and puts, while also selling calls. The premium for the calls (credit) finances the puts (debit) — which in turn provide downside protection. The upside is limited due to the short calls. In this case, the strategist pays $15.17 per share for the collar total (excluding commissions) and has downside protection at $14 (-7.7 percent). The upside is limited to $17 (12.1 percent). If the stock is trading above that level at the February expiration, the calls will be assigned and the strategist will sell the shares at $17.

Bearish Flow

Big prints in the Select Sector Financials (NYSEARCA:XLF) after an investor paid 74 cents for the June 12 - 15 (2X1) put spread, 27500X. While possibly closing, this looks like a bearish ratio spread and or a hedge. Earlier today, the Jun 10 - 14 (2X1) put ratio spread was sold at 70 cents, 22000X. So, the collective action might be an adjustment (closing out the June 10 - 14 ratio spread to open the Jun 12 - 15). XLF is up 10 cents to $14.28.

Implied Volatility Movers

Dow component Dupont (NYSE:DD) is up 37 cents to $32.87 and options are seeing some action ahead of earnings, due tomorrow before the bell. 9660 calls and 6020 puts traded so far. The top trade is a block of 3500 Feb 34 calls, bought at 45 cents per contract and tied to 133K shares at $32.80. Implied volatility is up about 1 percent, to 29, as investors brace for possible volatility around tomorrow's earnings release.

Unusual Volume Movers

Nokia (NYSE:NOK) is seeing 2X average daily trading volume, with 72,000 contracts traded and call volume representing about 95 percent of today's activity.

Union Pacific (NYSE:UNP) is seeing 5X average trading volume, with 66,000 contracts traded and puts representing 95 percent of today's trading activity.

Halliburton (NYSE:HAL) is seeing 3X normal trading volume. 60,000 contracts traded, with call options representing about 61 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Texas Instruments (NASDAQ:TXN), Hershey's (NYSE:HSY), Citrix Systems (NASDAQ:CTXS).