Tuesday Options Recap

 |  Includes: ANN, MTG, TLB, UA
by: Frederic Ruffy


Stocks are holding a second day of solid gains on a relatively slow news day Tuesday. On the economic front, a report released at 10:00 a.m. eastern time showed pending home sales up 1 percent in December, which was in-line with economist estimates. The stock market averages dipped on the news, but the decline never gathered momentum. Instead, it's been a steady grind higher throughout the session and the Dow Jones Industrial Average is up 114 points late in the day -- not far from session highs.

Commodities are higher for a second day, with crude oil up another $2.85 to $77.28 a barrel. Gold gained $11 to $1016 an ounce. The tech-heavy NASDAQ added 18. The CBOE Volatility Index (VIX) lost 1.3 to 21.29. Options volume is leaning on the bullish side as well, with approximately 4.9 million puts and 7.4 million calls traded (a ratio of .67, compared to a 22-day average of .77.)

Bullish Flow

Talbots (NYSE:TLB) saw a morning spike and hit a new 52-week high Tuesday. Shares are up $1.05 to $13.29 after rival Ann Taylor (NYSE:ANN), which was the subject of bullish flow yesterday, raised its outlook. ANN is up 18 percent (Mar 15 calls, which were the subject of yesterday's shopping spree, have quadrupled!) Meanwhile, shares of other women apparel retailers are up on the news. TLB is one of them and trading in the options market is brisk, with 29K calls and 13K puts traded. Some of the activity is likely closing, as in-the-money Feb and Mar 10 and 12.5 calls are among the most actives and open interest is sufficient to cover.

MGIC (NYSE:MTG), the Milwuakee-based mortgage insurance company, is up 25 cents to $6.69 and options order flow is directionally bullish amid increasing interest in Sep 12.5 and June 10 calls. The top trade is 8734 Sep 12.5s at the asking price, 55 cents per contract, on PHLX. 10K now traded (vs. 285 in open interest.) Another 1500 June 10 calls traded (91 percent Ask) vs. 1,192 in open interest. Co. reported earnings on Jan 26 and was subject of positive broker commentary on Jan 27 (FBR says heavy lifting in reserve build is nearly complete.)

Bearish Flow

CBOE Volatility Index (VIX) is down .92 to 21.67 and now well below the levels seen last Monday, when the index rallied up to a high of 28. In the options pits, one noteworthy trade today is the purchase of 105K VIX Mar 20 puts at 70 cents per contract, which appears to be an opening trade and perhaps a bet that the volatility will return to the high teens over the next six weeks.

Implied Volatility Movers

Speculative activity is being seen in Under Armour (NYSE:UA) amid renewed takeover chatter. Shares are up 70 cents to $26.67 and the focus is on Feb and Mar $30 calls. Feb 30s are the most actives. 2145 traded (20% Mid / 65% Ask) vs. 1902 in open interest. Implied volatility is up about 6 percent to 48.