Monday Options Recap

by: Frederic Ruffy


Stock market averages are higher, as investors cheered EU plans for a $1 trillion bailout of the deeply indebted European countries. The ECB also unveiled plans to buyback national debt and the US Federal Reserve also pledged more loans to the Europeans. The euro and Europe's equity markets rebounded. With little other news to guide the action in the US, stocks rallied on Wall Street as well. Heading into the final hour, the Dow Jones Industrial Average has added 350 points. The NASDAQ is up 94.5. Trading in the options market is a bit lighter than Thursday's (record day) and Friday. About 8.25 million calls and 8.25 million puts traded so far.

Bullish Flow

Mittal (NYSE:MT), the Luxembourg-based steel and iron company, is up $2.86 to $36.66, and 12K call options traded in the name Monday. Shares had previously suffered a 26 percent decline since April 15 and some investors might now be looking for a rebound over the next few weeks, as June 35, 36, 38, and 40 calls are among the day's most actives. In the 38s, 2913 traded (78% Ask). Implied volatility, which had rallied from 43 to 62 in the first week of May, is down about 10 percent to 56.

It appears that one savvy player has been active in the iShares MSCI Spain Index Fund (NYSEARCA:EWP) over the past two trading sessions. On Friday, they bought 17K May 38 calls at 45 cents per contract. Almost 20K traded total and open interest increased by 19,835. Now, with shares up $4.49 to $37.90 on the EU bailout news, open interest is 19.9K (by far the biggest in EWP) and it appears that the position is being liquidated at $1.10 to $1.20. About 13.5K contracts now traded. It's a hefty gain, but the call options have also suffered due to falling implied volatility — down about 25 percent to 48.

Bearish Flow

Implied volatility remains elevated in the credit rating agencies, as shares fall on worries about an SEC investigation into Moody's (NYSE:MCO) 2007 application to remain a recognized rating agency. The company disclosed Friday that it had received a Wells Notice from the SEC and could face enforcement action related to the matter. Shares hit a low of $20.52 early Monday and were recently down $1.74 to $21.62. About 12K puts and 2,715 calls traded so far. Implied volatility is up another 12 percent to 63.5. McGraw Hill (MHP) is down $1.90 to $28.38. 3,680 puts and 1,490 calls traded. Implied volatility is up about 6.5 percent to 48.

Implied Volatility Movers

After closing above 40 for the first time in more than one year Friday, the CBOE Volatility Index (.VIX) has plummeted 13.3 points, or 32 percent, to 27.65 early Monday. If VIX closes at these levels, it would represent the third biggest point decline in VIX (behind 10/20/2008 and 10/13/2008) and the largest percentage decline in the VIX history. Meanwhile, recent trades in the volatility index include a block of 25K May 35s at 95 cents, which might offset an existing position. Open interest is currently 182.6K and the largest of any VIX contract. It expires in 8 days. 134K calls and 47K puts traded total, or roughly 3X the recent average for VIX in the first hour of trading.

Unusual Volume Movers

Comcast (NASDAQ:CMCSA) options volume is running 9X the usual, with 109,000 contracts traded and put activity representing about 54 percent of the activity.

ON Semiconductor (ONNN) options activity is running 9X the usual, with 43,000 contracts traded and put volume representing 92 percent of the volume.

Genworth (NYSE:GNW) options volume is running 2X the usual, with 33,000 traded and put volume representing 51 percent of the activity.

Unusual volume is also being seen in CVS (NYSE:CVS), Macy's (NYSE:M), and Broadcom (BRCM).