Tuesday Options Recap

by: Frederic Ruffy


The major averages are holding modest gains, as even the Federal Reserve rate announcement failed to stir up much volatility Tuesday. The table was set for steady trading early after the latest data showed housing starts at an annual rate of 575,000 homes in February, which was down from 611,000 in January, but better than the 570,000 that economists had expected. Building permits, a better gauge of future activity, fell to 612,000 from 622,000, but ahead of the 601,000 that had been expected.

The Dow Jones Industrial Average opened steady and then it was wait-and-see into the FOMC rate announcement. As expected, the Fed didn't do much. Nor did they signal any upcoming changes to future rate policy.

Consequently, there was little reaction to the day's events. The Dow Jones Industrial Average has traded in another narrow 60-point range and is up 30 points heading into the final forty minutes. The CBOE Volatility Index (.VIX) slipped .46 to 17.54. Trading in the options market is picking up ahead of the "Quadruple Witch" expiration, with about 7.1 million calls and 5 million puts traded so far.

Bullish Flow

GE (NYSE:GE), which saw more than 68,500 Mar 17.5 calls traded yesterday, is up 63 cents to $17.92 today and heading to session highs after the Fed stood pat on rates and said it expects rates to stay low for quite some time. GE shares were already higher ahead of the announcement after the company said it expects to make profits and increase its dividend in 2011.

In the options market, trading remains brisk with another 281000 GE calls and 119000 puts on the tape so far. March 17.5 calls are agiain the most actives, with another 66.2K traded and some closing trades likely driving the action, as open interest is 174K and still the largest of any GE options contact. Some investors are likely rolling to the April 18, April 19, and June 18 calls on hopes the stock can continue its running to new 52-week highs.

Starbucks (NASDAQ:SBUX) gapped up, touched a new 52-week high, and was recently 81 cents higher to $25.23 after UBS upgraded the stock to Buy. Options action picked up as well, with 12,000 calls and 7,000 puts traded so far. March 25 and 26 calls, which have three days of life remaining after today, are the most actives. April 25 and 26 calls are seeing interest as well. Implied volatility has eased about 1 percent and, at 25, is probing 52-week lows.

Bearish Flow

Put volume is picking up in Cummins Engines (NYSE:CMI) today. Shares are up 70 cents to $60.92 and moving to session highs following upbeat comments at its Analyst Day, which started about two hours ago. The company sees $20 bln in sales in 2014 — Reuters. Shares of the Columbus, IN machinery company are up, but the tone of trading in the options market seems cautious. 13K puts and 2600 calls traded so far. The top trade is a lot of 483 Mar 60 puts at $1.30 apiece on CBOE. Looks like a buyer. 9530 now traded (76% Ask) vs. 2758 in open interest. Mar 60 calls and April 55 puts are seeing interest as well. Implied volatility is up about 1 percent to 35.5.

Implied Volatility Movers

Beazer Homes (NYSE:BZH) saw a morning spike to $5.05 and was recently up 20 cents to $4.93 on takeover chatter — Briefing. Although the idea of a homebuilder getting bought out seems slightly far-fetched in today's world, the chatter did trigger a noticeable reaction in the shares and the options. Total options volume is 11X the average daily, with 7740 calls and 95 puts traded in BZH. March and April 5 call options are the most actives, with 3820 (46% Ask) and 3429 (59% Ask) traded, respectively. Implied volatility is up about 6 percent to 61.

Unusual Volume Movers

Intel (NASDAQ:INTC) is seeing 2X average daily trading volume, with 222,000 contracts traded and call volume representing about 84 percent of today's activity.

Vale (NYSE:VALE) is seeing 2X average trading volume, with 135,000 contracts traded and calls representing 85 percent of today's trading activity.

United Healthcare (NYSE:UNH) is seeing 3X normal trading volume. 116,000 contracts traded, with call options representing about 70 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Harley Davidson (NYSE:HOG), Motorola (MOT), and Walmart (NYSE:WMT).