Wednesday Options Recap

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 |  Includes: AAL, AMFI, AMGN, APC, CMC, GNW, LM, MYL, RIG, T
by: Frederic Ruffy

Sentiment

Stocks are trading broadly higher with help from better than expected home sales numbers Wednesday. Trading was slow early after the Dow Jones Industrial Average lost 113 points Tuesday and amid another round of disappointing action in global equity markets. However, in the US, the stock market averages found a lift from a report on Pending Home Sales released at 10:00 Eastern time. The data showed a 6 percent increase for April, ahead of the 4.3 percent economists had predicted. March numbers were also revised higher. With little else to guide the action, the Dow rallied to session highs on the news and the momentum carried through to afternoon trading. With forty minutes left, the Dow is up 175 points and near session highs. The NASDAQ added 47. The CBOE Volatility Index is off an impressive 5.05 points to 30.49.

Bullish Flow

Big prints in US Airways (LCC). Shares hit 52-week high and are up 77 cents to $9.41 amid relative strength in the airlines after BofA/Merrill reinstated LCC, UAUA/CAL, ALK, and LUV with Buy ratings. In LCC options, recent trades include a June 10 – 11 call spread apparently sold at 21 cents (28900X25900), which appears to be a roll of a bullish position opened in late May. Open interest in the June 10s is 30K and the contract traded at 23 cents, 25700X on May 26. Also traded today: a block of 21450 Jul 12 calls traded at the 32-cent asking price. It might be the same player — selling to close the June 10s at a 22-cent per contract profit, and then buying to open new positions in Jun 11s and Jul 12 calls.

Commercial Metals (NYSE:CMC) saw a morning spike, is up $1.11 to $15.97, and it looks like speculative call buying in Jun 16 and 17.5s. The top trade is 169 June 16s at the 80-cent asking price. 1227 traded. Another 2199 June 17.5s changed hands. Some of the activity might be offsetting, as open interest is sufficient to cover in both contracts. Implied volatility is up about 1.5 percent to 63.5. No headlines on the stock. Next earnings due June 22, after the expiration. Company provided upside guidance on May 18.

Bearish Flow

Legg Mason (NYSE:LM) with big prints today. Shares are up $1.24 to $30.66 and the strategist apparently came out even on the bearish Jul 27 – 32 risk-reversal, 20000X (paid $1.15 for puts). Looks like a new position and tied to shares at $29.70.

Implied Volatility Movers

Transocean (NYSE:RIG) is off $1.73 to $48.31 and implied volatility is moving up along with oil driller’s Credit Default Swaps. CDS protecting RIG’s debt surged 183 basis points to a record 590 today, according to Reuters (BP up 87 points to a record 255 and APC, 103 points to 430.) Fear of potential ramifications associated with the out-of-control spill caused by the Deepwater Horizon rig is being felt in the share price (down 43 percent since 4/28), the CDS market, and in options action. Another 39K calls and 34K RIG puts traded so far. Activity is scattered across many contracts and the front-month June puts and calls are seeing 43 percent of the total volume. Meanwhile, implied volatility is still on the move, up 7 percent to 91– compared to the low 30s before the disaster happened in late April.

Unusual Volume Movers

Anadarko Pete (NYSE:APC) options volume is running 2X the usual, with 63,000 contracts traded and call activity representing about 65 percent of the activity.

Genworth Financial (NYSE:GNW) options activity is running 5X the usual, with 63,000 contracts traded and put action representing 96 percent of the volume.

Amgen (NASDAQ:AMGN) options volume is running 4X the usual, with 58,000 contracts traded and call activity representing about 58 percent of the activity.

Unusual volume is also being seen in Mylan Labs (NASDAQ:MYL), Moody’s (NYSE:MCO), and DirecTV (DTV).