Thursday Options Recap

by: Frederic Ruffy


Stock market averages are suffering modest losses in cautious trading ahead of key payroll data Friday. The stage was set for early weakness on Wall Street after the Labor Department said that jobless claims increased by 19,000 to 479,000 last week. Economists were looking for a decline of about 5,000. With no other data to guide the action, and monthly jobs numbers looming Friday morning, the Dow Jones Industrial Average opened lower and trading has been sluggish ever since. With less than an hour left to trade, the Dow is down 10 points and the NASDAQ off 7.1. The CBOE Volatility Index (.VIX) is little changed at 22.17. Overall volume is light, with about 5.2 million calls and 4 million puts trade so far.

Bullish Flow

A massive ratio risk-reversal in the Financial Select Sector ETF (NYSEARCA:XLF) Thursday after a strategist buys 50000 Sep 16 calls and sells 25000 Sep 14 puts, paying a penny. Shares are down .12 to $14.85 and the trade was tied to 1.75 million XLF shares (at 14.85). Separately, another investor bought 11K Sep 11 puts. 31.6K now traded. Open interest is sufficient to cover. So some of these trades might be closing transactions.

From Henry Schwartz. Today’s Archer Daniels Midland (NYSE:ADM) option volume exceeds 4x normal levels. as shares trade up more than 4.5% to $29.98 on a spike in Wheat Futures related to a Russian export ban. 15,000 calls have traded, and 8300 puts, with Aug 30 calls the most active with 6000 contracts on the tape and IV up 6 pts to the 30% level. One notable trade was a sweep buyer paying 1.80 for 1500 Dec 30 calls 15mins ago as shares were near 29.89.

Bearish Flow

Potash (NYSE:POT) adds $3.23 to $114.62 and options volume is double the average daily, with 45K calls and 28K puts traded in the name so far. Many of the ag commodity related names (AGU, CF, IPI, MOS, AGCO, DE, ADM) are seeing relative strength after wheat futures rallied on news Russia will ban grain exports. So, POT is higher and options are actively traded. The top trades appear to be part of a bearish play, however, after an investor apparently initiated a Sep 70 – 90 – 110 put fly at a $3.05 net debit, 1500X on AMEX.

Implied Volatility Mover

Smithfield Foods (NYSE:SFD) loses 60 cents to $14.32 and options volume is 2X the average daily, being driven by an opening Aug – Sep 16 call time spread, apparently bought at 27.5 cents, 2500X on AMEX. The company is expected to report earnings early September and the spread trader might be looking for shares to hold below $16 over the next two and half weeks (thru August expiration) before making a run higher through the September expiration. Implied volatility is up 4 percent to 49. Other meat producers — SAFM, TSN, PPC — are also lower today, perhaps due to the disruption of grain exports from Russia.

Unusual Volume Movers

Bullish flow detected in Affymax (NASDAQ:AFFY), with 4694 calls trading, or 10x the recent avg daily call volume in the name.

Bullish flow detected in Assured Guaranty Municipal Holdings (NYSE:AGO), with 4677 calls trading, or 2x the recent avg daily call volume in the name.

Bullish flow detected in Harman International Industries (NYSE:HAR), with 5016 calls trading, or 28x the recent avg daily call volume in the name.

Increasing options action is also being seen in Tesoro (NYSE:TSO), Valero (NYSE:VLO), and H&R Block (NYSE:HRB).