Wednesday Options Recap

by: Frederic Ruffy


The major averages are sporting modest gains in another day of uneventful market action Wednesday. The only economic stat of the day, a report on wholesale inventories, showed a decline of 0.2 percent in January, which was less than the 0.2 percent increase economists had expected. The major averages showed little reaction to the data.

Instead, trading has been quiet and, although the Dow Jones Industrial Average had fallen into the red midday, it's now up 18 points heading into the final 40 minutes of trading. The NASDAQ added 19. Yet, while trading is slow, trading in the options market is very active, with about 11.8 million calls and 6.2 million puts traded so far.

Bullish Flow

Oil refiner Valero (NYSE:VLO) is up $1 to $20.53 and options trading is brisk Wednesday, with 33,000 calls and 19,000 puts on the tape so far. The gains in the shares and the heightened options activity comes the day after Reuters reported that PBF Investments might be interested in buying VLO's Paulsboro refinery in New Jersey. Shares are now not far from session highs and the options action is really scattered: March 20 calls, March 20 puts, Sep 23 calls, Sep 25 calls, April 21 calls, Mar 19 calls, Jan11 20 puts, Mar 21 calls, June 18 calls. Meanwhile, implied volatility is up about 2.5 percent to 32.

The top equity options trade so far today is a block of 38K January 35 calls on Microsoft (NASDAQ:MSFT). It was bought at 52 cents per contract and not tied to stock, according to a source on the floor. It might close an existing position, as open interest is 77.7K.

Bearish Flow

SunTrust (NYSE:STI) is up 68 cents to $26.51 after The Wall Street Journal wrote that Barclays (NYSE:BCS) is looking to buy a retail bank and mentioned STI, Fifth Third (NASDAQ:FITB), and Comerica (NYSE:CMA). Yet, while STI touched a new 52-week high of $27.25, it's off its best levels and sentiment in the options market seems somewhat cautious, with 36K puts and 13K calls traded so far. The top trades appear to be part of a bearish ratio spread where an investor paid 6 cents for the April 22 - 24 (2X1) put spread, 7500X on NYSE. It might close.

Implied Volatility Movers

CBOE Volatility Index (.VIX) is up .29 to 18.21 and looking to extend this week's winning streak. After falling during 17 of 18 trading sessions, VIX is up 4.5 percent since Friday and might be seeing some strength due to upcoming expirations — VIX options a week from today and then the "Quadruple Witch" next Friday. In the options, noteworthy trades in the VIX today include two large blocks totaling 80K May 35 calls on the bid of 45 and 50 cents per contract. These blocks printed in morning action and, since it looks opening, might reflect expectations that VIX is unlikely to make a significant move higher by the VIX May expiration (69 days.)

Unusual Volume Movers

Citi (NYSE:C) is seeing 5X average daily trading volume, with 1.8 million contracts traded and call volume representing about 75 percent of today's activity.

AIG is seeing 3X average trading volume, with 240,000 contracts traded and calls representing 57 percent of today's trading activity.

Intermune (NASDAQ:ITMN) is seeing 3X normal trading volume. 122,000 contracts traded, with put options representing about 57 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in AMD (NYSE:AMD), CF Industries (NYSE:CF), and Zions Bancorp (NASDAQ:ZION).