Monday Options Recap

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 |  Includes: APOL, ARNA, CECO, COCO, DV, ESI, GILD, HAL, KODK, LOPE, NLY, STRA, TXN, WFT, XHB
by: Frederic Ruffy

Sentiment

The major averages are holding modest gains, but trading remains cautious following disappointing economic data and ahead of this week’s busy earnings calendar. The Dow Jones Industrial Average fell into the red in morning trading after the latest NAHB Index of Homebuilders Confidence showed a drop to 14 in June, and 15-month lows. Economists were looking for the index to hold steady at 16. Beyond that, there wasn’t a lot of news to guide the action and, after a 260-point swoon Friday, the Dow is back into positive territory. Investors are now bracing for a busy week of earnings, including IBM and Texas Instruments at the close. With an hour left to trade, the Dow Jones Industrial Average is up 60 points. The CBOE Volatility Index (VIX) is off .85 to 25.80. Trading in the options market is running about typical levels, with 5.8 million calls and 4.4 million puts traded so far.

Bullish Flow

Arena Pharmaceuticals (NASDAQ:ARNA) are up 67 cents to $5.33 and have rallied about 36 percent since last Thursday's news that the FDA rejected Vivus' Qnexa obesity drug. Arena currently has its own fat pill under review. Options action remains brisk, with another 17K calls and 11K puts traded today. Aug 5 puts are the most actives and appear to be seeing some closing trades and rolling to Sep 4 puts. The top trade is a lot of 343 Aug 5 calls at the 75-cent Ask. 3,364 traded. Another 2429 Aug 6 calls traded as well. Overall, sentiment in the options market seems consistent with the bullishness reflected in the two-day rally in the share price. Meanwhile, implied volatility is down about 8 percent but remains elevated around 94.

Eastman Kodak (EK) is flat at $4.40 and 10,860 August 4 puts traded so far today. The top trade is 8500 on the 10-cent bid. The rest of the trades have been smaller lots at 15 cents and the action might add to positions opened Friday, which included a block of 9,432 contracts on the 15-cent bid. Implied volatility is down 2.5 percent to 70 and these put writers are possibly willing buyers of the stock at $4. EK has lost more than half its value since late April. Earnings due out July 28, before market.

Bearish Flow

Annaly Capital Management (NYSE:NLY) lost 12 cents to $17.50 Friday and a noteworthy trade in NLY options was a buyer of 13.3K Aug 14 puts at 7 cents each on PHLX. At the end of the day, nearly 20K traded and open interest is now 19.3K – the third largest position in the name (behind Aug and Oct 15 puts.) August and October 16 puts saw increasing interest Friday as well. The action comes two days after the New York-based REIT announced an offering of 60 million shares of common stock and ahead of earnings, expected late-July.

Implied Volatility Movers

Apollo Group (NASDAQ:APOL) is up $3.65 to $49.22 early Monday, amid relative strength in the education names (APOL, CECO, ESI, COCO, DV, STRA, LOPE). CNBC is reporting that the group is higher on talk of legislative easing. Options action picking up in APOL. 4,050 calls and 1,545 puts traded in the first 20 minutes. Aug 55 and 55 calls are the most actives. Implied volatility is up about 6 percent to 39.

Unusual Volume Movers

Halliburton (NYSE:HAL) options volume is 3.5X the recent average daily, with 97K contracts traded and call volume representing 76 percent of the total flow.

SPDR Homebuilders Trust (NYSEARCA:XHB) is seeing 3X the average daily options volume, with 46,000 contracts traded and call activity accounting for 95 percent of the flow.

Weatherford (NYSE:WFT) options action is running 3X the average daily, with 45,000 contracts traded and call volume representing 95 percent of the action.

Unusual volume is also being seen in Texas Instruments (NASDAQ:TXN), Eastman Kodak (EK), and Gilead Sciences (NASDAQ:GILD).