Tuesday Options Recap

by: Frederic Ruffy


The major averages are little changed in a day of relatively quiet market action Tuesday. The table was set for mixed trading at the open, as investors digested another heavy dose of earnings news. DuPont (NYSE:DD) rose more than 3 percent after the chemicals company reported better than expected earnings and raised guidance for the future. The Conference Board’s Consumer Confidence Index came into focus at 10:00 eastern time. It showed a drop to 50.4 in July, down from 54.3 in June and worse than the 51.0 that economists had forecast. The market showed little reaction to the news and the focus seems to be on earnings. Consequently, trading is narrow and mixed. With less than an hour left to trade, the Dow Jones Industrial Average is up 20 points and the NASDAQ lost 6. The CBOE Volatility Index (.VIX) is up .33 to 23.06. Trading was active early, but has slowed a bit. About 5.7 million calls and 4.6 million puts traded so far.

Bullish Flow

Ambac Financial (ABK), the New York-based surety and title insurance company, jumps 11 cents to 97 cents per share. Options action is heating up as well, with players flocking to Aug 1 and 1.5 calls. 5620 and 2094 traded, respectively, and about 70 percent trading at the Ask. Sep 1.5, Nov 1, and Jan12 1 calls are seeing action as well. 13K calls and 1370 puts on the tape so far. Implied volatility is down 4 percent, but remains elevated at 150. The company last reported earnings on May 18. Shares gapped down and are off 33.6 percent since that time. However, the stock has been performing better over the past few days, up 47 percent since July 19.

Large blocks of out-of-the-money Pfizer (NYSE:PFE) calls have traded in recent action. Shares are up 21 cents to $15.23 and it includes: 50K Dec 18 calls at 15 cents, 50K Dec 17 calls at 30 cents, 50K Sep 17 calls at 10 cents, 50K Aug 16 calls at 11 cents, and 30K Dec 16 calls at 58 cents. Sources tell us this is a brokerage firm crossing blocks for account swaps, Not a spread or directional play on the pharmaceutical maker.

Bearish Flow

Genzyme (GENZ) has given up early gains and is down a dime to $67.28 late Tuesday, but is up more than 25 percent since last week’s news that Sanofi Aventis (NYSE:SNY) might make a bid for the company. Options are actively traded again today. This morning, for example, a bearish three-way spread surfaced when a strategist sold 7000 October 75 calls at $1.60 to buy 7000 Jan 50 – 65 put spreads at $3.70. The spread, which looks like a new position, has been repeated more than once and volume in the Jan 50 – 65 put spread is approaching 10000. The action might be hedging activity by shareholders to protect recent gains in GENZ shares. Reuters reports today that Genzyme is considering SNY’s informal takeover request, but isn’t actively attempting to sell the company.

Implied Volatility Mover

Sprint Nextel (NYSE:S) is down 23 cents to $4.82 and options are actively traded for a second day heading into earnings, tomorrow before market. Open interest in Aug 5 call options increased by 19,494 following a day of active trading Monday. At 110,970 contracts, the August 5 call option is now the largest position in Sprint. Another 13,438 traded to day, with 67 percent traded at the Ask. Meanwhile, Sep 5 calls have traded 4681X (96 percent Ask) and the top trade in Sprint today looks like a buyer of 3300 Aug 5 puts at 29 cents each on ISE. Overall, the flow over the past two days seems to reflect optimism heading into the results. Implied volatility is up nearly 10 percent to 55 and, although shares are down today, the stock is up 14.2 percent month-to-date.

Unusual Volume Movers

Bullish flow detected in Silicon Labs (NASDAQ:SLAB), with 7800 calls trading, or 5x the recent average daily call volume in the name.

Bullish flow detected in Time Warner (NYSE:TWX), with 5380 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Itau Unibanco Banco Holding SA (NYSE:ITUB), with 5428 calls trading, or 3x the recent average daily call volume in the name.

Increasing volume is also being seen in MGM (NYSE:MGM), Boeing (NYSE:BA), and Xerox (NYSE:XRX).