Tuesday Options Recap

by: Frederic Ruffy


Stocks are trading mixed on a relatively slow news day Tuesday. With no economic numbers or earnings of importance to guide the market action, the underlying tone remained cautious following another round of losses in Europe’s equity markets. However, after two days of losses on Wall Street, the morning decline was orderly and market action had turned mixed by midday. From that point forward, trading has been choppy and the major averages have traded in a narrow range. With about an hour left to trade, the Dow Jones Industrial Average is up 47 points, but the tech-heavy NASDAQ down 19. The CBOE Volatility Index (.VIX) lost 1.74 to 34.83. Options action reflects the cautious underlying tone, with about 6.1 million calls and 6.7 million puts traded so far.

Bullish Flow

Sprint (NYSE:S) slips 14 cents to $4.52 and 33K calls traded in the name Tuesday. The action includes two blocks of 2249 and 2032 Jun 5 calls at 10 cents per contract on ISE, which are both opening customer buyers, according to ISEE data. 11.4K now traded. Jul 5, Jan 5, Jun 4, and Aug 4 call options are seeing interest as well. The action comes ahead of a presentation at a RBC Tech, Media and Comm Conference tomorrow.

Hecla Mining (NYSE:HL) is up 15 cents to $5.25 and a block of 21.5K Jan 2012 calls at the 2.5 line at $3.20 on ISE is an opening customer buyer, according to ISEE data.

Bearish Flow

Microsoft (NASDAQ:MSFT) shares slipped 45 cents to $24.84 and a noteworthy options trade Tuesday morning was a bearish risk-reversal in the October 20 puts and October 30 calls. To be specific, it looks like an investor bought 6,000 October 20 puts at 64 cents each and paid for part of the premium by selling 6,000 October 30 calls at 37 cents each. This trade might be a hedge or collar if the investor already owns 600,000 MSFT shares. By selling calls, this strategist is making a statement that they are willing seller of MSFT at $30 per share. The puts are bought to hedge the downside risk of owning the stock

Implied Volatility Movers

Apollo Group (NASDAQ:APOL), the Phoenix, Ariz. education company, is up 29 cents to $50.05 and a noteworthy trade early Tuesday is a Jul 35 – 65 bullish risk-reversal at 10 cents. Looks like an opening position and a play on a rebound. Shares are off 23.9 percent since April 21. Implied volatility is up to about 70, from the mid-30s, during that time.

Unusual Volume Movers

BP (NYSE:BP) options volume is running 2X the usual, with 258,000 contracts traded and put activity representing about 56 percent of the activity.

CVS (NYSE:CVS) options activity is running 2X the usual, with 38,000 contracts traded and call volume representing 69 percent of the volume.

SPDR Metals and Mining ETF (NYSEARCA:XME) options volume is running 2X the usual, with 37,000 traded and put volume representing 87 percent of the activity.

Unusual volume is also being seen in Kraft (KFT), Diamond Offshore (NYSE:DO), and Baxter (NYSE:BAX).