Tuesday Options Recap

by: Frederic Ruffy


Stocks slipped on bearish consumer confidence data Tuesday. The table was set for early weakness after crude and gold lost ground and the Case Shiller 20-City Index released before the bell showed home prices falling 3.1 percent in December. The decline follows a 5.1 percent drop the previous month and was in-line with expectations.

However, volatility didn't begin to pick up until thirty minutes into the trading session after the Conference Board said its index of consumer confidence unexpectedly plunged to 46 in February, down from 56.5 last month and much worse than the 56.0 reading that economists had predicted.

The Dow Jones Industrial Average sank on the news and the selling intensified midday. However, the Dow is coming off session lows and is down 78 points heading into the final hour, or about 37 points above its worse levels. The CBOE Volatility Index (.VIX) hit a high of 21.94 and was recently up 1.54 to 21.48. Trading in the options market is more defensive today. Approximately 5.5 million puts and 5.4 million calls traded so far.

Bullish Flow

Expedia (NASDAQ:EXPE) hit a low of $21.91 midday, but has since battled back somewhat and is up 5 cents to $22.43. In the options market, recent trades include a multi-exchange sweep of 4250 April 25 calls at the asking price of 30 cents per contract. Looks like a buyer. No headlines on the stock yet today.

Brocade (NASDAQ:BRCD) sank $1.62 to $5.34 and options action is brisk after the company reported better than expected earnings for the most recent quarter, but lowered its fiscal year earnings and revenue outlook. The stock was hit with multiple downgrades and shares are reeling. Meanwhile, 52K calls and 17K puts have traded on the network equipment maker. The action includes blocks of Jan11 7.5 and Jan11 10 calls at the ask in morning trading, which appears to be closing call buyers exiting positions on the news.

Bearish Flow

Radioshack (NYSE:RSH) is off $1.52 to $19.11 after the electronics retailer posted earnings and revenues that matched Street estimates late Monday. Some investors might have been expecting better news. While shares are taking a hit, it appears that one or more investors is liquidating positions in the Mar 20 - 22.5 call spread, collecting 47 and 48 cents, more than 5000X, on CBOE and ISE.

Big Print in Ford Motor (NYSE:F) after 125K Jan $10 puts traded at $1.21 vs. a position in Ford shares at $11.44 (+.23), on a 30 delta. It traded from broker-to-broker and appears to be part of a protective put strategy.

Implied Volatility Movers

Melco Crown Entertainment (NASDAQ:MPEL) is seeing relative strength and active call buying on takeover chatter Tuesday. Wynn Resorts (NASDAQ:WYNN) is mentioned as a possible bidder. Shares are up and 5,200 calls traded, or about 18X the expected volume for the first two hours of trading. Mar 5, Apr 5, and Apr 7.5 calls are the most actives and, with about three-quarters trading at the asking price, it seems that buyers are dominating the action. In addition, implied volatility is up about 15 percent to roughly 100.

Unusual Volume Movers

Ford Motor (F) is seeing 2X average daily trading volume, with 223,000 contracts traded and put volume representing about 75 percent of today's activity.

Brocade (BRCD) is seeing 11X average trading volume, with 126,000 contracts traded and calls representing 71 percent of today's trading activity.

ArcelorMittal (NYSE:MT) is seeing 6X normal trading volume. 59,000 contracts traded, with call options representing about 87 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in STec (NASDAQ:STEC), Target (NYSE:TGT), and the Select Sector Technology Fund (NYSEARCA:XLK).