Tuesday Options Update

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 |  Includes: ARNA, BBRY, BCSI, BHI, DOW, INT, KGC, PG, RAX, RRD
by: Frederic Ruffy

Sentiment

Trading is sluggish Tuesday following a round of lackluster earnings and economic news. Data released before the opening bell showed personal incomes and spending unchanged during the month of June. Economists were looking for no change in spending, but a .1 percent increase in income. Two separate reports released later showed factory orders falling .8 percent and pending home sales down 2.4 percent in June. Both reports fell short of economist estimates. Meanwhile, the day’s earnings news was mixed. While Pfizer (NYSE:PFE) shares almost 6 percent on stronger-than-expected profits, Dow Chemical (NYSE:DOW) and P&G (NYSE:PG) are suffering post-earnings losses. Overall, however, sentiment seems relatively upbeat. After a 210-point rally to start the month of August Monday, the Dow Jones Industrial Average is down 25 points. With forty-five minutes left to trade, the CBOE Volatility Index (.VIX) is up .32 to 22.33. Trading in the options market is running about the usual levels, with 6.4 million calls and 4.2 million puts traded so far.

Bullish Flow

Kinross Gold (NYSE:KGC) is down 88 cents to $15.46 and seeing relative weakness after announcing plans to buy Toronto-listed Red Back Mining in a $7.1 billion deal. Gold is up $2.4 to $1186.50 and the sector, as measured by the PHLX Gold and Silver Mining Index (.XAU), up .6 percent. Yet, while KGC is under pressure on the merger news, some players seem to view the weakness as an opportunity for bullish trades ahead of the miner’s earnings tomorrow afternoon. 28K calls and 11K puts traded in Kinross so far. Sep 16 calls are the most actives after 22K traded (53 percent Ask). A lot of the action has been on the ISE, where sentiment data indicate that 5761 calls (or 56 percent of the call volume on the ISE) have been bought to open so far. Implied volatility is up about 11 percent to 41.

Impressive trade in Arena Pharmaceuticals (NASDAQ:ARNA) ahead of earnings. Shares are flat at $7.17 and one strategist collects $1.70 on the Oct 7 – 12.5 bullish risk-reversal, 9000X on CBOE. Looks opening and comes the day after JP Morgan downgraded the stock to Neutral from Overweight. Earnings and a conference call are due after the closing bell. The biotech is expected to post a 29-cent per share loss. Implied volatility is elevated at 186, up 2 percent today.

Bearish Flow

Research In Motion (RIMM) shares are down $1.32 to $55.66 and RIM options are seeing brisk trading as the company unveils its new BlackBerry Torch at an ongoing BlackBerry event. The new smartphone comes with a revamped Blackberry 6 operating system and will be exclusive through AT&T on Aug 12. AT&T announced a $199 retail price with a 2 year commitment. 200 mb of storage for $15 per month and 2 gb for $25/mon. In options trading, volume in RIMM is two times the average daily. 84K calls and 60K puts traded so far. August 57.5 and 60 calls are the most actives. Aug 55 and Sep 55 puts are busy as well. However, no big prints yet today. The top trade is Sep 50 – 55 put spread apparently bought at $1.80, 749X on ISE.

Implied Volatility Mover

Rackspace (NYSE:RAX) with relative strength and increasing interest in Aug 20 calls. Shares up 73 cents to $19.80 and not far from session highs. 3527 contracts traded, with 57 percent trading at the Ask and open interest (as of Monday) of 1,293. Implied volatility is up 6 percent to 50.5 and today’s call buying might be a play on earnings, due Aug 9.

Unusual Volume Movers

Bearish activity detected in World Fuel Services (NYSE:INT), with 3226 puts trading, or 31x the recent avg daily put volume in the name.

Bearish activity detected in RR Donnelley and Sons (NASDAQ:RRD), with 6579 puts trading, or 60x the recent avg daily put volume in the name.

Bullish flow detected in Blue Coat Systems (NASDAQ:BCSI), with 6595 calls trading, or 3x the recent avg daily call volume in the name.

Increasing options volume is also being seen in Baker Hughes (NYSE:BHI), Dow Chemical (DOW) and P&G (PG).