Wednesday Options Recap

by: Frederic Ruffy


Major averages shook off early weakness and are modestly higher late Wednesday. The tone of early trading was cautious after the latest NY Empire State Index for August fell to 4.10 (from 7.1 the month before) and well below economist estimates of 6.4. The latest Industrial Production numbers for August, at .2 percent, also missed expectations (.3 percent). With no earnings to guide the action, some attention is also on the currency markets where the Yen took a bruising after Japanese officials sold more than 2 trillion of their currency on US and overseas markets today. In the end, however, the events at home and abroad didn't have much market impact. With forty-minutes left to trade, the Dow Jones Industrial Average is up 30 points. The CBOE Volatility Index (.VIX) is up 1.06 to 22.62 heading into the Quadruple Witch expiration. Trading is active, with about 7.4 million calls and 5.5 million puts traded so far.

Bullish Flow

Citi (NYSE:C) is flat at $3.94 today and one strategist bought 96000 of the January 2011 5 calls at 7 cents and sold 89000 of the January 2012 5 calls at 42 cents. This reverse time spread might be closing or rolling, as open interest in the 2011s is 2.6 million, and, in the 2012s, 1.7 million. (Separately, One player sold 2011 - 2012 $4 spread at 36 cents, 40000X in midday trading, but it appears that spread was later canceled.) The Citi January 2011 $5 calls and Citi January 2012 $5 calls are now today's most actively traded equity options.

Beyond Citi options, the top options trade today is in BofA (NYSE:BAC) after an investor buys a block of 58,000 Jan 14 calls at $1.05 per contract. This hefty premium purchase was tied to stock at $13.57 (-.11), delta neutral, according to a source on the exchange floor.

Bearish Flow

Family Dollar Stores (NYSE:FDO) loses 13 cents to $42.90 and options volume is 4.5X the average daily, being driven by buyers of Oct 42 put options. The top trade is a lot of 500 at $1.05 on ISE and an opening buyer, according to ISEE data. Approximately 13,000 contracts now traded (72 percent Ask) vs. 806 in open interest. Implied volatility is up nearly 10 percent to 34. The activity is apparently in reaction to a bearish call by an options-related investment newsletter.

Implied Volatility Mover

Trading remains brisk and implied volatility is moving higher in Arena Pharmaceuticals' (NASDAQ:ARNA) ahead of tomorrow's FDA review of the biotech's obesity drug lorcaserin. Shares, which fell nearly 40 percent yesterday after briefing documents raised concerns about the decision, are down another 48 cents to $3.65 Wednesday. Meanwhile, 203K ARNA calls and 94K ARNA puts have changed hands so far today. Short-term players are bracing for a big possible move. Sep 4, 5, and 7 calls along with Sep 2, 3, and 4 puts are the most actives. Meanwhile, implied volatility, which eased a bit this morning, is now up 3 percent to 312 and new 52-week highs.

Unusual Volume Movers

Bullish flow detected in Plains Exploration and Production (NYSE:PXP), with 19156 calls trading, or 4x the recent avg daily call volume in the name.

Bullish flow detected in Coventry Healthcare (CVH), with 3003 calls trading, or 46x the recent avg daily call volume in the name.

Bullish flow detected in Sirius XM Radio (NASDAQ:SIRI), with 20058 calls trading, or 3x the recent avg daily call volume in the name.

Increasing options activity is also being seen in Schlumberger (NYSE:SLB), Focus Media (NASDAQ:FMCN), and Yahoo (NASDAQ:YHOO).