Monday Options Recap

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 |  Includes: AA, BAX, FMCC, RCL, SQNM, UHS, WMB, XLK, YHOO
by: Frederic Ruffy

Sentiment

Stock market averages are lower after manufacturing data released early fell below economist estimates and as the euro suffered another round of losses Monday. Stock index futures fell into the red before the exchanges opened in New York after the NY Empire State Index, a gauge of regional manufacturing activity, showed a decline to 19.11 in May, down from 31.86 the month before and well below economist estimates of 30.00. When the exchanges opened, the Dow Jones Industrial Average made an attempt at gains despite the data, but the early advance quickly faltered. Players are fixated on happenings in Europe, and with the euro once again under pressure, the Dow suffered as well. After falling towards 1.23, the euro is now flat at 1.2355. Meanwhile, the Dow Jones Industrial Average is down 35 points, but off 150 points from its worst levels. The NASDAQ lost 4. Options activity is running about the typical pace, with 7.2 million calls and 7 million puts traded so far.

Bullish Flow

Yahoo (NASDAQ:YHOO) is off 38 cents to $16.01 and noteworthy options trades today include a seller of 12,500 July 18 calls at 41 cents each. It was tied to 390K shares at $16.40 and might close an existing position, as open interest is 39K. Another interesting trade is a three-way spread, where an investor apparently bought the Oct 17 – 19 call spread at 91 cents and sold Oct 14 puts at 72 cents, 1500X. A separate block of 2200 Jan 17.5 calls traded at the $1.60 asking price. 24K calls and 16K puts traded total. Implied volatility is up about 2.5 percent to 40.

Sequenom (NASDAQ:SQNM) is up 66 cents to $6.19 and options order flow is bullish, with about 12K calls and 1,142 puts traded so far. The action includes a buyer of 1800 June 6 calls at 80 cents each. 2420 now traded. May 6 and 7 calls are the most actives, with 3118 and 3160 contracts traded and about 58 percent trading at the Ask. Implied volatility is up about 8.5 percent to 98. No news on the stock today. The biotech last week announced plans to raise money by selling roughly 12.4 mln shares of common stock at $4.15.

Bearish Flow

Alcoa (NYSE:AA) is down 4.2 percent to $11.84 and the biggest loser in the Dow Jones Industrial Average Monday. Noteworthy options trades include a block of 18,700 Jun 14 calls at 16 cents each on AMEX. It was sold against a position in (360K) shares at $12.15, according to a source on the floor, and might close an existing position because open interest is more than 60K . Separately, a strategist sold 4500 May 13 puts at 97 cents against 369K shares at $12.13, which might offset because open interest is more than 45K. 31K calls and 12K puts traded total. No headlines on the aluminum maker. Implied volatility is up about 2 percent to 51.5.

Implied Volatility Movers

CBOE Volatility Index (.VIX) made a run to 35.25 and was recently up 3.50 to 34.74 midday Monday, as the bearish underlying tone continues on Wall Street Monday. The S&P 500 dipped back towards 1115 after this morning NY Empire State Index disappointed (19.11 in May vs. 30 consensus) and then the euro gave up early gains. The European currency ran up to 1.2375, but was recently back towards the 1.23 handle. Uncertainty about the European debt crisis continues to weigh on sentiment and, consequently, VIX is making another run higher. In VIX options action, the same spread discussed Friday (see 5/14, 10:04 color) was initiated again, after the May 35 – Jun 37.5 call spread trades at 50 cents, 50000X. This morning's open interest data confirms Friday's action was a roll from May to June. Today's spread is likely the same.

Unusual Volume Movers

Williams Companies (NYSE:WMB) options volume is running 34X the usual, with 124,000 contracts traded and call activity representing about 96 percent of the activity.

Select Sector Technology Fund (NYSEARCA:XLK) options activity is running 7X the usual, with 91,000 contracts traded and call action representing 96 percent of the volume.

Royal Caribbean (NYSE:RCL) options volume is running 3X the usual, with 47,000 traded and put volume representing 85 percent of the activity.

Unusual volume is also being seen in Baxter (NYSE:BAX), Freddie Mac (FRE), and Psychiatric Solutions (OTCPK:PSYS).