Tuesday Options Recap

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 |  Includes: BBBY, BP, DNDN, DO, EWH, FTR, HD, MYL, NVDA, T
by: Frederic Ruffy

Sentiment

Trading was quiet throughout most of the session and then the stock market averages came under fire late Tuesday. The Dow and NASDAQ held steady early despite weakness in equity markets across much of Asia and Europe. Then, existing home sales numbers came into focus at 10:00 eastern time. The data showed a surprise drop to an annual rate of 5.66 million in May, down from 5.79 million in April and much worse than the 6.1 million that economists were expecting. The Dow Jones Industrial Average slipped into the red on the data, but trading had turned mixed by midday. However, with about 90 minutes left to trade, a round of selling surfaced. Cyclical names like Home Depot (NYSE:HD), Caterpillar (NYSE:CAT), and Alcoa (NYSE:AA) are leading the Dow to a triple digit loss. The NASDAQ is down 19. CBOE Volatility Index (.VIX) is up 1.47 to 26.35 and near session highs. Options action is on the light side, with roughly 5.2 million calls and 4.7 million puts traded so far.

Bullish Flow

Bed, Bath and Beyond (NASDAQ:BBBY) is down another 37 cents to $40.93 and has now suffered a 10.8 percent one-week slide heading into earnings, tomorrow after market. Options activity is picking up, with 5,600 calls and 1,900 puts traded so far. The top trades look like a buyer of Jul 42 – 45 call spreads at 95 cents, 1000X on PHLX. Beyond that, most of the trades have been smaller lots. The biggest is 238 July 41 puts at the $1.80 ask price. July 41 calls are seeing some interest as well, with 1435 traded. Implied volatility is up 5 percent to 41, compared to a 52-week high and low of about 49 and 20.

Diamond Offshore (NYSE:DO) was among a number of drilling names that saw a spike around 13:40 after a judge ruled against Obama’s six-month moratorium on deep water drilling in the Gulf. DO hit a high of $68.65 on the news. However, like other names in the sector, shares erased the gains after the broader market came under pressure and it remained unclear when drilling would resume. Louisiana Governor Jindal said drilling rigs won’t resume until there is greater certainty about the moratorium. DO is now down $1.90 to $62.84, 8/5 percent off session highs. Meanwhile, July 70 and 75 calls are seeing increasing action, with 8720 and 1660 traded, respectively. Implied volatility is up about 10 percent to 45.

Bearish Flow

iShares Hong Kong Fund (NYSEARCA:EWH) is up 7 cents to $15.68 and has gained 1.8 percent this week after the People’s Bank of China announced plans to remove the yuan-dollar peg. One player in the options market appears to be bracing for additional volatility in Hong Kong’s equity markets during the months ahead and apparently bought 10,000 EWH Sep 15 puts at 52.5 cents each against a position in 360K shares at $15.72.

Implied Volatility Movers

BP (NYSE:BP) is down 62 cents to $29.71 and, after dropping to $29.43 Tuesday morning, came within striking distance of its June 9 intraday low of $29. Meanwhile, BP options continue to see brisk trading. Another 86K calls and 63K puts traded in the first 90 minutes of today’s session. The top trade is a block of 20K July 32 puts on the $3.65 bid, which might close a position from June 9 when a block of 20K traded at $2.45. Shares are down 11.6 percent since the puts traded on the morning of June 9. Implied volatility in BP is up for a second day, gaining 4 percent to 79 today, from 73 Friday. However, while shares are revisiting the June 9 lows, IV is still well below the 117 level seen at that time.

Unusual Volume Movers

Frontier Communications (NASDAQ:FTR) options volume is running 38X the usual, with 89,000 contracts traded and put activity representing about 97 percent of the activity.

Dendreon (NASDAQ:DNDN) options activity is running 2.5X the usual, with 67,000 contracts traded and call volume representing 56 percent of the volume.

Home Depot (HD) options volume is running 2.5X the usual, with 61,000 traded and call volume representing 78 percent of the activity.

Unusual volume is also being seen in DirecTV (DTV), Mylan Labs (NASDAQ:MYL), and Nvidia (NASDAQ:NVDA).