Wednesday Options Recap

by: Frederic Ruffy


Stocks are holding modest gains following another volatile day of trading Wednesday. The major averages opened steady and then dipped into the red in morning action after the latest New Home sales data showed a decline to an annualized rate of 342,000 homes in December, from 370,000 in November and also well below the 366,000 home sales economists had predicted.

The stock market averages were lower midday and then the selling accelerated at 14:15 eastern time when the Federal Reserve announced that, as most people expected, they would leave rates unchanged. However, the knee-jerk reaction proved short-lived and stocks were bouncing back in afternoon action. With an hour left to trade, the averages are holding modest gains.

Both the Dow Jones Industrial Average and the NASDAQ are up 10 points. The CBOE Volatility Index (.VIX) hit a morning high of 25.69, but was recently down .73 to 23.82. Trading in the options market remains cautious, with approximately 5.9 million puts and 5.9 million calls traded (a ratio of 1.00, compared to a 22-day average of .73.)

Bullish Flow

Corinthian Colleges (NASDAQ:COCO) jumped 76 cents to $14.21 after Devry (NYSEARCA:DVY) earnings sparked morning gains in the education stocks Wednesday. (ESI, APOL, CECO, LOPE, APEI, also seeing strength.) In the options market, COCO Feb 15 calls are seeing interest. 3,375 contracts traded (21% Mid / 60% Ask). While open interest is sufficient to cover, implied volatility is up 3 percent to 51 and ISEE data (at 84 percent or 1469 contracts) is consistent with opening customer buyers — perhaps looking for COCO to also post strong earnings results when the company reports on Feb 2.

After a 5-day 13 percent slide, IntercontinentalExchange (NYSE:ICE) is up 52 cents to $95.83 and recent trades include a Mar 95 - 105 risk reversal. Looks like $3.05 collected to buy calls, sell puts. Might be a (Feb 10) earnings play.

Bearish Flow

Legg Mason (NYSE:LM) slipped 9 cents to $27.43 and 6,620 puts changed hands Tuesday. The action was focused on Mar 25 puts. 5,369 contracts traded (29% Mid / 62% Ask) and created new open interest of 5,369 contracts. The investment manager reported earnings last week and there has been no other recent news to explain the spike in put buying seen Tuesday. Shares are trading down another 40 cents to $27.03 Wednesday morning.

Implied Volatility Movers

Collective Brands (NYSE:PSS) is flat at $19.49 and 10.2K Mar 17.5 puts. Implied volatility is up 5.4 percent to 55.2 and the top trade is 4182 contracts at the asking price of 85 cents on PHLX. Looks like a premium buyer. It might close, as open interest is sufficient to cover. No recent news on the Topeka, KS apparel retailer. Earnings expected early-to-mid March and before the March expiration.

Unusual Volume Movers

Select Sector Financials (NYSEARCA:XLF) is seeing 2X average daily trading volume, with 587,000 contracts traded and put volume representing about 83 percent of today's activity.

US Steel (NYSE:X) is seeing 2X average trading volume, with 186,000 contracts traded and puts representing 61 percent of today's trading activity.

Qualcomm (NASDAQ:QCOM) is seeing 2X normal trading volume. 132,000 contracts traded, with put options representing about 57 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Yahoo (NASDAQ:YHOO), Gilead Sciences (NASDAQ:GILD), and Amylin Pharmaceuticals (AMLN).