Monday Options Recap

by: Frederic Ruffy


The trading week was off to a cautious start after Moody's said the risks are mounting for debt of four currently Triple A rated countries — the US, the UK, Germany and France. Debt is getting stretched, which could make it more difficult for governments to borrow money, according to Moody's. Stock index futures fell into the red before the opening bell on Wall Street.

However, futures came off their worst levels after the latest NY Empire State Index fell less than expected. The gauge of regional manufacturing activity fell to 22.86 in March, down from 24.91 the month before and better than the 22 reading economists had expected. A report on industrial production showed an uptick of .1 percent for February, which was a little better than the 0 percent economists expected.

At the end of the day, market action remained lackluster, as it appears that the concerns about credit downgrades overshadowed the day's other news. With about an hour left to trade, the Dow Jones Industrial Average has traded in another narrow 68-point range and is down 18. The CBOE Volatility Index (.VIX) added .60 to 18.18. Trading in the options market is on the light side, with about 5.4 million calls and 4.4 million puts traded so far.

Bullish Flow (NASDAQ:BIDU) shares have been volatile today, hitting a high of $628.50 on uncertainty about Google's (NASDAQ:GOOG) plans for China. Flyonthewall says we're likely to see increasing interest in a GOOG / BIDU pairs trade, where investors sell Google and buy Baidu on the idea that what's bad for Google Internet search is good for its biggest competitor in China. BIDU rallied to fresh all-time highs in morning action, but has since come off its best levels. With shares now up $20.76 to $571, options volume is 3X the average daily, with 45K calls and 41K puts traded. The top trade is a bearish Mar 580 - 590 put spread at $5 on ISE. Beyond that, the next biggest trade is a lot of 258 Jun 600 calls on the bid $33.30. Meanwhile, BIDU implied volatility is up about 10 percent to 38.

GE (NYSE:GE) is flat at $17.04 and March 17.5 calls are busy Monday. More than 43K traded and some of the action might be closing. Open interest is 181.4K and the biggest OI position of any GE contract. However, the top trade is a block of 2738 contracts at 17 cents on the ISE, which traded just after the opening bell and appears to be an opening customer buyer, according to ISEE data. The interest in GE calls comes on news the company is selling its electrostatic precipitator and emissions monitoring businesses to McDermott (NYSE:MDR) and the day before it presents at a Goldman Sachs Industrial Unscripted Conference. GE is also presenting at a Jefferies Global Clean Tech Conference tomorrow and Wednesday.

Bearish Flow

OSI Pharmaceuticals (OSIP) is up 32 cents to $58 per share and remains well above Astellas $52 takeover offer for the company. Astellas (OTCPK:ALPMY) has just issued a response to the OSIP Board's rejection of its offer, saying it will now take the matter directly to shareholders. In the options market, volume in OSIP is 3X the recent average daily. The top trade is a block of 4440 April 50 puts at the asking price of 30 cents, which might be a hedge should the deal fall apart altogether. Another investor apparently sold the April 50 - 55 call spread at $4.50, which might close or roll an existing position. Finally, the March 57.5 - April 50 call spread was bought at $7.50, 2710X, which is also possibly a closing trade or a roll.

Implied Volatility Movers

Amylin Pharmaceuticals' (AMLN) implied volatility is crashing after the company received a complete response letter from the FDA related to exenatide once weekly. In a conference call, the company said it expects product approval once issues are addressed. Shares touched a new 52-week high and are up $1.66 to $21.92 on the news. Trading in the options is active, with 14K calls and 8450 puts, including a recent seller of 1100 Mar 21 calls at $1.25. Meanwhile, implied volatility has plummeted about 155 percent, back to the mid 50s, now that this event risk has passed.

Unusual Volume Movers

Boston Scientific (NYSE:BSX) is seeing 7X average daily trading volume, with 105,000 contracts traded and call volume representing about 76 percent of today's activity.

Wal-Mart (NYSE:WMT) is seeing 3X average trading volume, with 100,000 contracts traded and calls representing 78 percent of today's trading activity.

MannKind (NASDAQ:MNKD) is seeing 5X normal trading volume. 82,000 contracts traded, with call options representing about 60 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in MetLife (NYSE:MET), Dow Chemical (NYSE:DOW), and Eastman Kodak (EK).