Monday Options Recap

by: Frederic Ruffy


The major averages are holding gains following better-than-expected economic news and on diminishing fears about debt problems overseas. The table was set for early gains after the Commerce Department reported that consumer spending rose .6 percent in March, which was in-line with economist estimates and twice as much as the increase in consumer incomes. Meanwhile, in Europe, the focus was again on Greece after the ECB removed ratings restrictions on Greek government bonds. Greece also agreed to a €110 billion ($147 billion) bailout from euro-zone countries and the International Monetary Fund. The news set a positive tone at the open on Wall Street and then the rally was extended 30 minutes after the bell on Wall Street when data showed Construction Spending up .2 percent in March (vs. -.03 percent consensus) and the ISM manufacturing Index at 60.4 in April (compared to 60.0 consensus.) The gains held heading into the final hour and the Dow Jones Industrial Average is up 160 points. The CBOE Volatility Index (.VIX) lost 2.32 to 19.73. Trading in the options market is a bit lighter than recent days, with 6.3 million calls and 4.9 million puts traded so far.

Bullish Flow

BP (NYSE:BP) has come off session lows and is down $1.27 to $50.88 in another day of active trading. Shares hit a morning low $47.35 amid ongoing concerns about the environmental and financial impact of the oil spill in the Gulf of Mexico. However, shares are now 7.5 percent off their worst levels after the NY Times reported that progress was being made in containing the spill. Crews finished building a containment dome and plan to cover one of the three leaks. Two more domes are expected to be finished Tuesday. In the options market, trading is brisk as well. 216K calls and 157K puts traded. May 50s are the most actives, as some players focus on the short-term at-the-money contract as a cheaper way to play the stock's next move. Implied volatility continues to run higher, up 16 percent to 43 today and from about 23 before the catastrophe happened on April 22.

Ann Taylor (NYSE:ANN) is up $1.43 to $23.13 and June call options are seeing some interest today. 3430 Jun 22.5s traded (100 percent Ask). Another 1346 Jun 25s changed hands (also Ask). Looks like buyers using sweep routers to buy calls and open new positions. ISEE data hint at non-customer or firm buyer. Implied volatility is up about 3 percent to 62. It might be an earnings play, due around May 21.

Bearish Flow

Kroger (NYSE:KR) is up 48 cents to $22.71 and 6,900 puts traded on the grocery chain, which is 9X normal and more than 10X the number of calls. Jan 20 puts are the most actives after 5400 traded (97 percent Ask). Another 1175 Jan 22.5s changed hands (100 percent Ask). Looks like opening trades in both contracts. Implied volatility is up about 4.5 percent to 23. No recent news to explain the apparent put buying. Next earnings due out late June.

Implied Volatility Movers

Transocean (NYSE:RIG) options continue to see heavy trading, as shares slide another $3.04 to $69.28. Shares are now down more than 23 percent since its Deepwater Horizon rig caught fire on April 22. Argus analysts downgraded the stock to Hold from Buy today, saying the incident will reduce earnings by 30 to 35 cents annually. BP pays about $500K per day for use of the rig and, although Transocean has insurance on the rig, it does not have business interruption insurance. In the options market, trading in Transocean remains brisk, but mostly smaller lots. The top trade is 1500 June 80 calls on the $2 bid. 59K RIG calls and 60K puts traded. Meanwhile, implied volatility continues to run higher – up about 17 percent to 61.5 today, more than double the levels seen (around 30) before the stock slide began. RIG is due to release earnings May 5, after market.

Unusual Volume Movers

BP options volume is running 10X the usual, with 383,000 contracts traded and call activity representing about 57 percent of the activity.

Intermune (NASDAQ:ITMN) options activity is running 3X the usual, with 57,000 contracts traded and put volume representing 55 percent of the volume.

Halliburton (NYSE:HAL) options volume is running 2X the usual, with 96,000 traded and put volume representing 52 percent of the activity.

Unusual volume is also being seen in Time Warner (NYSE:TWX), MetLife (NYSE:MET), and Symantec (NASDAQ:SYMC).