Wednesday Options Recap

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 |  Includes: ARST, CF, JOY, MDVN, NOVL, OSIP, RSH, TIVO, TRA, UUP
by: Frederic Ruffy

Sentiment

The major averages have given up early gains and are trading modestly lower late Wednesday. The stage was set for strength at the open when ADP reported that the US economy lost 20,000 private sector jobs in February, which was less than the 50,000 drop that economists had predicted. The early gains were extended in morning trading after ISM said its services index improved to 53 last month, up from 51.0 the month before and better than the 50.5 reading that economists were expecting.

Software stocks were buoyed by news of another takeover, after Elliott & Associates made a $5.75 per share bid for Novell (NASDAQ:NOVL). Energy names are trading mixed after crude oil made a run above $81 a barrel on bullish inventory data. However, some of the retailers are weak. Costco (NASDAQ:COST) and BJ Wholesale (NYSE:BJ) slipped on earnings and the group moves back into the spotlight with same store sales numbers due Thursday morning. Pending home sales, weekly jobless claims, and factory orders numbers are also due out tomorrow morning. Key monthly jobs data are scheduled for Friday.

The underlying tone of trading has turned cautious, with the Dow Jones Industrial Average and the NASDAQ seeing modest losses heading into the final hour. The CBOE Volatility Index (.VIX) added .05 to 19.11. Trading in the options market is running a bit slower than usual, with 5.3 million calls and 4.2 million puts traded so far.

Bullish Flow

Arcsight (ARST), a Cupertino, CA business software company, is up 72 cents to $28.46 and options activity is picking up ahead of earnings, tomorrow (after market). RBC analysts are out with positive comments today, saying recent checks have inspired them to raise their price target and third quarter revenue estimates for ARST. They reiterated the stock as their favorite small cap software idea. Shares are up and options volume is running 5X the average daily, with about 880 calls and 630 puts traded so far. Implied volatility is moving as well, up about 6 percent to 57.

Bearish Flow

PowerShares Bullish Dollar Fund (NYSEARCA:UUP) is off 18 cents to $23.47 after the euro found support from recently announced austerity plans in debt-ridden Greece. In the options market, UUP March 23 calls are seeing noteworthy action. One player sold 51000 contracts at 47 cents each, probably liquidating a position as UUP slips Wednesday. Open interest in those March 23 calls is 348K and the second largest of any ETF contract. (XLF March 14 put is the biggest.)

Implied Volatility Movers

OSI Pharmaceuticals (OSIP), which rallied almost 60 percent Monday after Astellas Pharm made a $52 per share cash bid for the biotech, touched a new 52-week high of $57.3 per share today. The stock is now off a nickel to $56.95, but still above the takeover price because some believe that the hostile offer could put OSIP into the auction process. The company's Board has said it isn't interested in selling at the current offering price of $52 per share. Consequently, players are still bracing for potential volatility in OSI's shares. One paid 75 cents for July 45 puts, 10000X today. Meanwhile, implied volatility has moved up about 2.5 percent to 19.5.

Unusual Volume Movers

Medivation (NASDAQ:MDVN) is seeing 5X average daily trading volume, with 151,000 contracts traded and put volume representing about 51 percent of today's activity.

Terra Industries (TRA) is seeing 5X average trading volume, with 82,000 contracts traded and calls representing 57 percent of today's trading activity.

CF Industries (NYSE:CF) is seeing 6X normal trading volume. 73,000 contracts traded, with call options representing about 63 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Radioshack (NYSE:RSH), TiVo (NASDAQ:TIVO), and Joy Global (JOYG).