Monday Options Recap

Includes: AA, HSH, MSFT, NSM
by: Frederic Ruffy


Stocks are broadly lower in a cautious trading ahead of event risk later this week. The economic calendar is backend loaded with monthly jobs data due out Friday morning. Investors will get their first peek at the September employment situation courtesy ADP’s report Wednesday morning. Meanwhile, pre-earnings jitters might also be a factor heading into the reporting period. Alcoa (NYSE:AA) unofficially kicks things off with its report Thursday. Beyond that, and the action overseas, investors will have little information to work with over the next few days. The tone of trading is clearly cautious Monday, with the Dow Jones Industrial Average down 103 points heading into the final hour. The NASDAQ lost 28. The CBOE Volatility Index ((.VIX)) added 1.5 to 24. Options volume is a bit lighter than usual, with 4.8 million calls and 4.3 million puts traded so far.

Bullish Flow

The top equity options trade today early Monday was in Microsoft (NASDAQ:MSFT) after one investor pays $1.99 for January 2013 $30 calls, 30000X. Open interest is 34.4K and today’s action likely adds to positions opened on 9/24 and 9/28. On 9/24, for example, one investor paid $1.90 for 15000. Another block of 15500 traded at the $1.99 asking price on 9/28.

The action continued in Microsoft. One player sold 10K January 2013 calls at $3.45 each. Hearing it was tied to stock at $23.95. Another paid 39 cents for January 20 puts, 13500X, against 203K shares at $23.88. A third noteworthy trade is a January 24 - 27.5 call spread bought at $1.03, 15000X. It looks tied to 500K shares at $23.81. Total volume in MSFT is now 155K calls and 93K puts, or more than double the typical volume for the software maker. Implied volatility is up about 3.5 percent to 28, compared to a 52-week high and low of 39 and 20. The heightened activity comes after Goldman downgraded shares to Neutral from Buy, sending the stock down 55 cents to $23.83.

Bearish Flow

National Semi (NSM) shares are off 24 cents to $12.56 amid weakness in the chip stocks Monday after Semiconductor Industry Association reported that worldwide semiconductor sales rose 1.8 percent to $25.7 billion in August. SIA’s press released noted “Concerns about economic conditions in US and Europe, coupled with seasonal patterns, bear close monitoring… We remain confident in our $290.5 billion forecast (for 2010).” NSM is down and options volume includes 5,400 puts and 145 calls so far. October 14 puts traded 2485X (63 percent ask). May $11, May 13, and Oct 13 puts are seeing interest as well. NSM implied volatility is up 3 percent to 33.5 ahead of a meeting with JP Morgan analysts Oct 7 and 8.

Implied Volatility Mover

Sara Lee (SLE) shares are up $1.08 to $14.51 and implied volatility is higher following reports over the weekend that the company has rejected a takeover offer from KKR. Options volume is 29X the recent average daily and being led by buyers of Nov 15 calls. 5,575 traded (66 percent Ask). Meanwhile, implied volatility is up 24 percent to 31.5, compared to a 52-week high and low of 43.5 and 20.5.