Wednesday Options Recap

by: Frederic Ruffy


Major averages are lower in a day of uninspired market action Wednesday. Trading was sluggish at the onset after data showed Durable Goods orders falling 1 percent in June, and significantly worse than the 1 percent increase that economists had expected. The day’s earnings news didn’t help much. Comcast (NASDAQ:CMCSA), Aetna (NYSE:AET), Newmont Mining (NYSE:NEM), and Dow component Boeing (NYSE:BA) all slipped on profit news. Meanwhile, the Fed’s latest Beige Book didn’t offer much relief either, as it included more talk of sluggish real estate, slowing economic recovery, and modest improvement in employment. At the end of the day, the day’s earnings and economic news failed to stir much enthusiasm. With 30 minutes left to trade, the Dow Jones Industrial Average is down 55 points. The NASDAQ lost 26. The CBOE Volatility Index (.VIX) added 1.17 to 24.36. Trading in the options market is on the light side, with 5.65 million calls and 4.00 million puts traded so far.

Bullish Flow

Big Print in the iShares Japan Fund (NYSEARCA:EWJ) Wednesday morning after 30K Dec 10 calls are apparently bought to open at 34 cents per contract. Shares are up 11 cents to $9.65 after Japan’s Nikkei added 2.7 percent, its biggest single-day percentage gain on the year, following strong earnings from Canon (NYSE:CAJ).

From Henry Schwartz. A massive trade in Microsoft (NASDAQ:MSFT) calls printed on the ISE this afternoon, totalling nearly 180,000 contracts, versus a hedge 700,000 shares at $26.11. Data indicates a customer bought 128960 September 28 calls to open, for an avg price near 24cents, and sold nearly 50,000 Jan-12 30 calls to open at an avg price near $1.975. Net options premium is about $6.7million collected on the trade, and while initially delta neutral, the trade is very long gamma and profitable if shares sell off sharply, or rally beyond the $29 level. Theta on the trade is nearly $54k/day and it may be related to the 190,000 contract spread that traded yesterday in MSFT (in that case, paper bought Sep 17th 27.5 calls against a sale of Oct 27s).

Bearish Flow

Kellogg’s (NYSE:K) shares are off 74 cents to $51.74 and some options players are snacking on Kellogg’s put options ahead of earnings. The top trade is a block of 2261 Aug 50 puts at 55 cents when bid-ask was 45 to 60 cents. 6028 now traded. Another 1750 Sep 50 and 1246 Dec 45 puts also traded — 86 percent Ask. 9283 puts and 481 calls traded total. Directional sentiment based on the total flow is 82 percent bearish and implied volatility is up 8.5 percent to 24.5, suggesting some put buyers are bracing for disappointing news when the company reports tomorrow morning.

Implied Volatility Mover

Medco Health Solutions (NYSE:MHS), which saw an 8.1 percent post-earnings slide on July 22, is down another $1.82 to $47.46 and falling to fresh 52-week lows today. Options are also busy, with 6,680 Aug 45 puts traded. 97 percent traded at the 75-cent ask price. Meanwhile, implied volatility is up 14.5 percent to 31. No company news to explain the relative weakness and bearish flow today. It might be a sector play. Aetna (AET) is down 4.2 percent on earnings. Exprss Scripts (NASDAQ:ESRX), which reports after the close, is off 3.2 percent and Unitedhealth (NYSE:UNH) is down 1.9 percent.

Unusual Volume Movers

Bearish activity detected in Citrix Systems (NASDAQ:CTXS), with 5793 puts trading, or 3x the recent avg daily put volume in the name.

Bearish activity detected in Textron (NYSE:TXT), with 5799 puts trading, or 4x the recent avg daily put volume in the name.

Bullish flow detected in Foot Locker (NYSE:FL), with 2066 calls trading, or 5x the recent avg daily call volume in the name.

Increasing volume is also being seen in Amylin Pharmaceuticals (AMLN), Nvidia (NASDAQ:NVDA), and Symantec (NASDAQ:SYMC).