Wednesday Options Recap

by: Frederic Ruffy


Stocks are trading mixed late Wednesday, with strong earnings from Intel (NASDAQ:INTC) helping support the tech-heavy NASDAQ, but disappointing retail sales numbers and a dim view on the economy from the Fed weighing on other sectors of the market. Stock index futures rose late Tuesday after Intel posted solid second quarter earnings and also raised estimates for the third quarter. However, the Dow Jones Industrial Average opened only modestly higher after the Commerce Department reported that retail sales fell .5 percent in June, and more than double what economists had predicted. The Dow was holding modest gains into midday until the minutes from the latest FOMC meeting showed Fed officials revising downward their forecast for economic growth to 3 to 3.5 percent in 2010, down from earlier predictions of 3.2 to 3.7 percent. The Dow Jones Industrial Average is now down 36 points. The NASDAQ is up 1. With forty-five minutes left to trade, the CBOE Volatility Index (.VIX) edged up .58 to 25.14. Trading in the options market remains active, with about 6.6 million calls and 5.5 million puts traded so far.

Bullish Flow

AK Steel (NYSE:AKS) is up 95 cents to $14.25 after Goldman raised the steelmaker to Buy from Neutral. Options volume is running 2.5X the average daily, with 25K calls and 2600 puts traded so far. Most of the action has been in smaller lots, with the exception of a buyer of 5000 September 15 calls at 90 cents and a buyer of 5000 December 15 calls at $1.73. Volume in those two contracts is more than 6000. Meanwhile, implied volatility is up 5 percent to 61 ahead of a July 27 earnings report.

Gamestop (NYSE:GME) sees a morning spike to $19.86 on “unconfirmed takeover speculation." Shares are now down 20 cents to $19.31 and 9780 calls traded on the retailer. Some speculators are focused on the July 20 calls, which have traded 3187X (74% Ask). August 21, August 24, and July 16 calls are busy as well. Implied volatility is up 2 percent to 45.

Bearish Flow

Dow Chemical (NYSE:DOW) is up 32 cents to $27.03 and the Aug 24 – 26 put spread saw interest in early trading Wednesday. One player apparently paid 62 cents, 2000X on ISE. It’s traded nearly 4000X now and the action might roll up in strikes. ISEE data confirm that half are opening customer buyers and the activity might be to hedge a position in DOW shares ahead of earnings, which are expected early August.

Implied Volatility Mover

Lexmark (NYSE:LXK) is off $2.99 to $32 after Morgan Stanley cut the stock to Underweight. Options volume is running 2X the usual, with 7240 puts and 1140 calls traded. Implied volatility is up about 9 percent to 53 ahead of July 27 earnings report.

Unusual Volume Movers

Intel (INTC) options activity is 4X more than normal, with 433,000 contracts traded and call volume representing 69 percent of the action.

Cisco Systems (NASDAQ:CSCO) options volume is 2.5X the recent daily average, with 163,000 contracts traded and call volume accounting for 67 percent of the activity.

Vivus Pharmaceuticals (NASDAQ:VVUS) options volume is 4X the recent average daily, with 145,000 contracts traded and call volume accounting for 56 percent of the activity.

Increasing volume is also being seen in Dell (NASDAQ:DELL), EMC (EMC), and Nvidia (NASDAQ:NVDA).