Monday Options Recap

by: Frederic Ruffy


A busy week of economic news kicked off with a report on personal incomes and spending Monday morning. While incomes rose .4 percent in May, and .1 percent less than economists had predicted, spending increased by 2 percent and two times more than expected. Consumer confidence numbers are due out Tuesday and investors get their first peek at the June jobs situation courtesy of ADP’s private sector report Wednesday. Weekly claims, construction spending, ISM, and pending homes sales are slated for Wednesday. The Labor Department releases its jobs numbers Friday morning. Meanwhile, Europe’s equity markets traded quietly higher Monday after G-20 members met over the weekend and ironed out plans to cut debts and deficits. Germany’s DAX paced the advance with a 1.4 percent gain. Similarly, in the US, the Dow Jones Industrial Average is up 45 points. With an hour left to trade, the CBOE Volatility Index (.VIX) is up .15 to 28.68. Options volume is light, with roughly 4.1 million calls and 3.3 million puts traded so far.

Bullish Flow

Home Depot (NYSE:HD) is down 53 cents to $29.67 and the Aug 32 – 34 call spread is apparently bought at 39 cents, 20000X on PHLX. It might close or roll, as open interest is sufficient to cover in both contracts. Implied volatility in HD is up about 6.5 percent to 32. Earnings due out mid-Aug, possibly before the expiration. If this is an opening trade, it could be interesting heading into earnings. Excluding commissions, it offers a $1.61 pay-off if shares rally to $34 or more by the August expiration. So, the strategist is risking 39 cents to make $1.61, or a ratio of more than four-to-one. Of course, reaching the max profit potential from the spread requires a 14.4 percent rally in HD in 53 days. The breakeven at expiration is $32.39.

OptionsXpress (NASDAQ:OXPS), the Chicago-based online broker, is up 25 cents to $16.57 and heading to session highs. Options action is picking up in the Sep 20 calls and includes a multi-exchange sweep of 1,100 contracts at the 15-cent asking price. 1475 traded (vs. 356 in open interest) and implied volatility is up 4 percent to 32.5. No news on the stock today. Earnings expected mid-July.

Bearish Flow

Dell (NASDAQ:DELL) is up 14 cents to $13.07 and the Jan2012 10 – 12.5 put spread was apparently sold this morning at 96.5 cents, 4800X. This might roll a position in January 12.5 puts bot in mid-Jan at $1.83 per contract. Shares are down 12.9 percent since that time and the puts are being closed at a 50 cent profit. The $10 puts are now being bought-to-open.

Implied Volatility Movers

Altria (NYSE:MO) shares are up 88 cents to $20.58 and implied volatility is easing after the Supreme Court rejected the US goverment’s bid for a tobacco damage award. 55K puts and 18K calls traded in MO at midday, and some investors are likely liquidating positions in July 19 puts that were opened a couple of weeks ago (see 6/10 color.) 43.7K traded vs. 62.4K in open interest. Implied volatility has fallen about 13.5 percent to 26.

Unusual Volume Movers

Micron Technology (NASDAQ:MU) options volume is running 2X the usual, with 73,000 contracts traded and put activity representing about 51 percent of the activity.

eBay (NASDAQ:EBAY) options activity is running 4X the usual, with 66,000 contracts traded and put volume representing 56 percent of the volume.

Yahoo (NASDAQ:YHOO) options volume is running 3.5X the usual, with 64,000 traded and call volume representing 63 percent of the activity.

Unusual volume is also being seen in Seagate (NASDAQ:STX), AMD (NYSE:AMD), and Marvell Technology (NASDAQ:MRVL).