Wednesday Options Recap

by: Frederic Ruffy


The stock market averages are facing a bit of selling pressure, as bearish economic data and end-of-quarter window dressing seem to have exacerbated volatility a little Wednesday. Stock index futures fell in morning action after ADP said the US economy lost 23,000 private sector jobs last month, which was well below economist estimates for an increase of 40,000. Separate data showed the Chicago PMI manufacturing index down to 58.8 in March, down from 62.6 in February and less than the 61.0 reading that economists had predicted.

Meanwhile, portfolio managers are busy squaring books for the end of the quarter and some profit-taking might be a factor today as well. With about an hour left to trade, the Dow Jones Industrial Average is down 47 points and the tech-heavy NASDAQ lost 6. The CBOE Volatility Index (.VIX) edged up .46 to 17.59. Trading in the options market remains light. Approximately 3.8 million puts and 4.8 million calls traded so far.

Bullish Flow

JDS Uniphase (JDSU) broke above previous resistance to fresh 52-week highs this morning after Thomas Weisel Partners raised a price target on the stock to $18 from $15. Shares were recently up 69 cents to $12.68 and JDSU calls are seeing brisk trading. 19,000 contracts changed hands so far, including a multi-exchange sweep of 12.4K Jun 13 calls at the 95-cent Ask price. Looks opening and ISEE data hints at a non-customer or firm buyer, possibly looking for today's rally to continue and lift the stock towards the $18 price target by mid-June.

Bearish Flow

Teva Pharmaceuticals (NASDAQ:TEVA) is off 36 cents to $63.21 and a noteworthy trade today is a June 60/70 risk reversal, which traded 3,500X. The strategist bought June 60 puts at $1.26 while selling June 70 calls 31 cents a contract. The bearish trade looks like a new position and one that will make money if shares of TEVA head south before the June expiration.

Implied Volatility Movers

ArQule (NASDAQ:ARQL) shares rallied $2.50 to $6 and implied volatility is crashing down after the biotech's ARQ 197 showed some success in treating patients with non-small cell lung cancer. Options volume surged to more than 3000X the recent average daily on the news, with 7750 calls and 8400 puts traded so far. Trading is brisk in Apr 7.5 calls, Apr 5 puts, Apr 7.5 puts, July 5 puts and July 7.5 calls. Premium sellers have surfaced and, consequently, implied volatility has fallen about 60 percent, but remains elevated around 115.

Unusual Volume Movers

Ford Motor (NYSE:F) options volume is running 4X the usual, with 712,000 contracts traded and call activity representing about 72 percent of the activity.

Research In Motion (RIMM) options activity is running 2X the usual, with 210,000 contracts traded and call volume representing 61 percent of the volume.

Conseco (NYSE:CNO) options volume is running 21X the usual, with 68,000 traded and put volume representing 49 percent of the activity.

Unusual volume is also being seen in Motorola (MOT), Genworth (NYSE:GNW), and Talbot's (NYSE:TLB).