Tuesday Options Recap

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 |  Includes: AUY, BK, EA, EGO, GG, KGC, MBI, MSFT, SLV, T
by: Frederic Ruffy

Sentiment

Trading has turned mixed late Tuesday. The table was set for morning losses after the Dow Jones Industrial Average rallied 405 points Monday, but European stock market averages and the euro fell in overseas trading. China's equity markets also took a hit after hot inflation data raised the threat of tighter monetary policy from China's Central Bank. The Dow Jones Industrial Average followed overseas markets southward and had suffered a triple digit loss in early trading. However, another wave of buying interest sent the Dow back into positive territory by midday. Since then, market action has been choppy. With less than an hour to trade, the Dow Jones Industrial Average is down 13 points, but the NASDAQ up 6.

Bullish Flow

Microsoft (NASDAQ:MSFT) is flat at $28.94 and an investor collects 38 cents to sell Jan 22.5 puts and buy Oct 33 calls, 10000X on AMEX. The bullish risk-reversal was tied to 441K shares at $28.75. MSFT shares are trying to rebound this week after a 7.6 percent slide the week before. Implied volatility is easing another 3.5 percent to 28, after rallying to 37 Friday. Microsoft is also slated to present at a JP Morgan Technology, Media, and Telecom conference on May 17. Next earnings expected mid to late July.

Electronic Arts (ERTS) is up 83 cents to $19.07 and call options are seeing heavy trading ahead of earnings. 51K contracts traded so far, which is 9X the expected and more than 4X the number of puts. Recent trades include 3000 Jun 20 – 22 call spreads at 60 cents on ISE, which appears to be an opening spread ahead of the results. Beyond that, the next biggest trade is 807 Jun 22 calls at 36 cents on ISE and also an opening buyer, according to ISEE data. (Including half of the spread, 7835 ERTS calls were bought-to-open between 14:00 and 14:20). Meanwhile, implied volatility is up another 2 percent to 55.5 (up from about 41 a little more than one week ago) ahead of the earnings, due out after the closing bell.

Bearish Flow

DirecTV (DTV) is up 56 cents to $38.01 and one player buys 5,600 Sep 32 puts at 85 cents each. 6000 now traded vs. 6138 in open interest. The trade might offset a position from May 7 when 8000 Sep 39 calls were apparently sold at $1.36 and 6000 Sep 32 puts at $1.485. Shares are up 7.8 percent since that time. If so, this strategist is closing the put side of the trade for a profit of .635 cents (x6000) and left holding the Sep 39 calls, 8000X.

Implied Volatility Movers

Bank of New York (NYSE:BK) has come under pressure in recent trade, down 77 cents to $30.80, on news NY AG Cuomo will sue one of the bank's units, Ivy Asset Management, related to Madoff investments. Bearish activity was detected just as the story started making the rounds, with 6370 puts traded or 2X the recent average daily. May 29, 30, and 31 puts are the most actives. June 30 and 27 puts are seeing interest as well. Implied volatility is up about 9 percent to 38.

Unusual Volume Movers

iShares Silver Fund (NYSEARCA:SLV) options volume is running 2X the usual, with 118,000 contracts traded and call activity representing about 82 percent of the activity.

MBIA (NYSE:MBI) options activity is running 3X the usual, with 86,000 contracts traded and put volume representing 73 percent of the volume.

Goldcorp (NYSE:GG) options volume is running 2X the usual, with 54,000 traded and call volume representing 64 percent of the activity.

Unusual volume is also being seen in Kinross Gold (NYSE:KGC), Yamana Gold (NYSE:AUY), and Eldorado Gold (NYSE:EGO).