Tuesday Options Recap

 |  Includes: AGN, BAC, MGM
by: Frederic Ruffy


Stocks are broadly lower on disappointing economic news Tuesday. Prior to the opening bell on Wall Street, markets across Asia fell after the Conference Board slashed its April leading economic indicator for the country’s economy; raising fresh concerns about the world’s leading engine of economic growth. The Shanghai Composite Index took a 4.3 percent hit on the news. Hong Kong’s Hang Seng lost 2.3 percent and Japan’s Nikkei lost 1.3 percent. The news, along with weakness in the euro, weighed on European benchmarks as well. The Dow Jones Industrial Average followed overseas markets lower and then faced additional selling pressure on news the latest reading from the Consumer Confidence Index fell to 52.9 in June, and much worse than the 60.0 economists had predicted. From there, the Dow hasn’t been able to stage any rally attempts and is down 255 points late Monday. The CBOE Volatility Index (.VIX) rallied 5.48 to 34.48. Trading in the options market is brisk, with about 6.6 million calls and 7.4 million puts traded so far.

Bullish Flow

Noteworthy trading in BP Tuesday as the Jan 30 – 40 call spread recently trades at $3.40, 20000X on AMEX. Shares are up 63 cents to $27.68 and a buyer initiated this trade, according to a source on the floor. Implied volatility in BP is down about 5 percent to 78.5 after Tropical Storm Alex “remained on a track north of Mexican energy platforms and far southwest of US fields, further easing concerns in the oil market over supply disruption,” Reuters.

MGM shares are off 83 cents to $10.17 and options volume is 2X the average daily, with help from a buyer of 20K Jan 2012 $20 calls at $1.30 per contract. While open interest is 26K and enough to cover, this seems to add to a position from March 1 when 19K were bought at $1.30. Beyond that, the action in MGM is mixed today, with a total of 37K calls and 15K puts traded. Implied volatility is up about 10.5 percent to 72.5.

Bearish Flow

BofA (NYSE:BAC) lost 26 cents to $14.98 and the BAC July 14 put was the most actively traded options contract early Tuesday. Morning trades include a multi-exchange sweep of 4810 at the 24-cent ask price. 21K now traded and implied vols are up 4.5 percent to 46.4; as weak economic data in China, a slide on the euro, and a global equity market sell-off have conspired to stir up some bearish sentiment in the financials Tuesday morning.

Implied Volatility Mover

Bullish flow detected in Allergan (NYSE:AGN), with 6636 calls trading, or 8x the recent avg daily call volume for the Irving, CA pharmaceutical company. Implied volatility is up 12 percent to 36. Next earnings expected late July.