Monday Options Recap: Volatility Eases

by: Frederic Ruffy


Stocks traded mixed throughout most of the morning session, but sellers resurfaced Monday afternoon and the major averages are under water again late in the day. With no real economic data scheduled until next Thursday and a light earning calendar, there was little news to guide the action. The financials -- BofA (NYSE:BAC), Traveler's (NYSE:TRV), and American Express (NYSE:AXP) -- are the biggest losers in the Dow Jones Industrial Average, which is down 50 points heading into the final hour. The NASDAQ lost 4.6.

In the options market, volume and volatility are easing a bit. The CBOE Volatility Index (.VIX) is down .12 to 25.99. Approximately 4.3 million puts and 4.7 million calls traded (a ratio of .92, compared to a 22-day average of .82.)

Bullish Flow

Options action is heating up in Electronic Arts (ERTS) ahead of earnings. There seems to be some optimism building. Shares are up 41 cents to $17.67 and call volume is outpacing put activity by almost three-to-one. More than 12K calls and 4790 puts changed hands so far. Feb 19 calls are the most actives and zero percent of today's 7000+ contracts are on the bid (33% Mid / 66% Ask). Implied volatility is up about 7 percent to 52 and a skew between Feb (52.6 percent) and Mar (43 percent) hints at a possible earnings gap move of about $1.06, or 6 percent, when ERTS reports after the closing bell.

Crown Holdings (NYSE:CCK) is flat at $25.65 and options volume is 3X the average daily on increasing interest in Jan11 22.5 calls. 3,560 traded (vs. 163 in open interest) including the purchase of 2619 at $4.90. Looks like buyers opening. No headlines today. The Philly-based packaging company reported earnings on Feb 1.

Bearish Flow

Cadence Pharmaceuticals (CADX) is down 67 cents to $9.83 after Oppenheimer said they are cautious on Acetavance heading into Friday (Feb 12) FDA action date. The firm sees $4 max upside and $6 max downside and an unappealing risk-reward, in their view. Sentiment in the options market seems cautious as well. One player bought 1700 May 10 puts at $2.30 per contract and another bought 1000 May 7.5 puts at 90 cents each. 6410 puts and 1800 calls now traded. Implied volatility is up 22 percent to about 162.

Implied Volatility Movers

Veeco Instruments (NASDAQ:VECO), a Plainview, NY semiconductor equipment maker, is up 68 cents to $31.10 and options action is picking up ahead of earnings, due out after the close of trading today. 3305 calls and 925 puts traded so far. The top trade is 449 Feb 35 calls at 70 cents on ISE, which is an opening customer buyer, according to ISEE data. 2324 contracts now traded vs. 1665 in open interest. Implied volatility up almost 5 points to 56 percent.

Unusual Volume Movers

Cell Therapeutics (NASDAQ:CTIC) is seeing 2X average daily trading volume, with 80,000 contracts traded and call volume representing about 53 percent of today's activity.

CVS (NYSE:CVS) is seeing 3X average trading volume, with 51,000 contracts traded and puts representing 60 percent of today's trading activity.

Bristol Myers (NYSE:BMY) is seeing 2X normal trading volume. 32,000 contracts traded, with put options representing about 63 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in CIT (NYSE:CIT), Electronic Arts (ERTS), and Kinetic Concepts (NYSE:KCI).