Monday Options Recap

by: Frederic Ruffy


The stock market averages traded in a narrow range and are holding modest gains late Monday. With no economic data to guide morning trading, the focus was on the story stocks of the day - including a merger between Schlumberger (NYSE:SLB) and Smith International (SII) in the drilling sector along with better-than-expected earnings from home improvement retailer Lowe's (NYSE:LOW).

The Dow Jones Industrial Average opened higher in quiet trading and then slipped into mid-morning. However, a modest burst of buying interest surfaced late and, after trading in a 60 point range, the Dow is up 14 points heading into the final forty-five minutes of trading. The CBOE Volatility Index (.VIX) hit a high of 21.00, but was recently down .41 to 19.61. Trading in the options market is on the light side. Approximately 4.7 million puts and 6 million calls traded so far.

Bullish Flow

Taser (NASDAQ:TASR), which rallied 8.7 percent on earnings Friday, is up another 65 cents to $7.80 Monday after two firms (Merriman and Dougherty) raised earnings estimates following last week's results. In the options market, sentiment seems somewhat bullish as well. 4200 calls and 700 puts traded so far. Mar 7.5 calls are the most actives after 2860 traded (26% Bid / 26% Mid / 48% Ask). Implied volatility is steady around 53.

Millipore (MIL) spikes to a new 52-week high of $102.91 and was recently up $26.67 to $98.01 on 6X the average daily options volume. Thermo Fisher (NYSE:TMO) is said to be making a $6 bln bid for MIL. This is a thinly-traded name and therefore the overall options volume is light, with 500 calls and 220 puts traded so far.

Bearish Flow

Juniper Networks (NYSE:JNPR) is off 15 cents to $27.29 and more than 20,000 puts traded on the session. The action includes 3590 Mar 28 puts, where 84 percent of the trades hit at the offering price. Meanwhile, the March - April 27 put has traded more than 7,000X. It appears that one or more investors is selling March puts to close positions and then opening similar defensive positions in April. The company holds an analyst meeting tomorrow and presents at a GS Technology Conference Wednesday.

Implied Volatility Movers

26000 calls trade on Intermune (NASDAQ:ITMN) so far today, or 8X the typical volume for midday and 5X the number of puts. Shares are down 49 cents to $14.84 and attempting to bounce off session lows $14.63. Trading is scattered across March calls with strike prices ranging from 15 to 35. Some of the activity appears to be rolling up in strikes and perhaps some bullish positions rolled to April. In any event, implied volatility is rallying, up another 14 percent to 266 ahead of the company's Mar 9 FDA panel for pirfenidone.

Unusual Volume Movers

Schlumberger (SLB) is seeing 5X average daily trading volume, with 120,000 contracts traded and call volume representing about 52 percent of today's activity.

Home Depot (NYSE:HD) is seeing 2X average trading volume, with 60,000 contracts traded and puts representing 51 percent of today's trading activity.

Merck (NYSE:MRK) is seeing 2X normal trading volume. 50,000 contracts traded, with put options representing about 52 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Commercial Metals (NYSE:CMC), TiVo (NASDAQ:TIVO), and Medivation (NASDAQ:MDVN).