Monday Options Recap

by: Frederic Ruffy


Stocks are trading mixed ahead of earnings. With little news to guide trading Monday, investors shift their attention to Alcoa’s (NYSE:AA) earnings. The Dow component unofficially kicks off the second quarter earnings season Monday afternoon. Dow components Intel (NASDAQ:INTC), JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC), and GE (NYSE:GE) report later this week. Meanwhile, this week’s economic calendar is back-end loaded. The first report of significance is Retail Sales midweek. Import/Export Prices and Business Inventories are also due out Wednesday morning. FOMC minutes could affect trading Wednesday afternoon. Thursday holds Weekly Claims, PPI, Industrial Production and NY Empire Index. The week concludes with CPI and University of Michigan Sentiment Friday. Overall, the tone of trading has a wait-and-see feel Monday ahead of earnings and data. The Dow Jones Industrial Average and the NASDAQ are flat. Options volume is on the light side. With less than an hour to trade, 5 million calls and 4.2 million puts traded so far.

Bullish Flow

Select Sector Financial (NYSEARCA:XLF) July 15 calls, which saw an opening buyer of 115K at 8 cents Friday, is today’s second most actively traded options contract (behind Citi (NYSE:C) July 4 call). Another 34K traded, including several blocks at the 8 and 9 cent ask price. Implied volatility in the XLF is up 3 percent to 33.5 ahead of earnings from JP Morgan (JPM), Citi (C) and BofA (BAC) later this week.

Barrick Gold (NYSE:ABX) is flat at $43.57 after gold (August) lost $11.50 to $1198.30 an ounce Monday morning. A noteworthy spread in the gold miner is a July 36 – October 37 call spread, apparently bought at 7 cents, 6000X on AMEX. Looks like a roll out of Juy 36 calls opened at $5.55 in mid-April. Shares are up almost 9 percent since that time and the strategist is banking a profit of $2.18, now opening a new position in the October 37 calls at $7.80 per contract.

Bearish Flow

Impressive volume in VIX August 25 puts. The volatility index is down .41 to 24.47 today and has now suffered a 7-day 10-point skid. In options trading, one player bought 50K contracts at $1.40. Several additional blocks also traded at $1.40 and volume has swelled to more than 100K contracts, which is about 3X the existing open interest. The put purchases might be to hedge a position in VIX futures or it might be a bet that volatility will continue falling from here. Although this week’s economic calendar is backend loaded, the earnings reporting season might lead to lower overall levels of market volatility as the earnings releases result in mixed trading. Indeed, actual volatility has already been falling. SPX 20-day statistical volatility is now 21.2 percent, compared to a 60-day of 26.3 percent.

Implied Volatility Mover

Alcoa (AA) options action is picking up, as players brace for potential volatility around earnings. The Dow component unofficially kicks off the second quarter earnings-reporting season at the close today. Shares are off a nickel to $10.89 and the top trades include an August 11 straddle, apparently bought at $1.36, 3600X on PHLX. Meanwhile, July 11 puts and calls are also among the most actives, with 7566 and 14259 traded, respectively. Implied volatility is up about 6.5 percent to 48.

Unusual Volume Movers

Vivus Pharmaceuticals (NASDAQ:VVUS) options volume is running 3X the average daily, with 70,000 contracts traded and call volume representing 50 percent of the total volume.

Mosaic (NYSE:MOS) options volume is 3.5X the recent average levels, with 48,000 contracts traded and call volume accounting for 51 percent of the volume.

Lowe’s (NYSE:LOW) options volume is 5.5X the average daily, with 47,000 traded and call volume representing 86 percent of the activity.

Unusual volume is also being seen in STEC (NASDAQ:STEC), Texas Instruments (NYSE:TXN), and Pride Petroleum (NYSE:PDE).