Tuesday Options Recap

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 |  Includes: AAPL, BAC, EEM, FNSR, INFN, KCI, KO
by: Frederic Ruffy

Sentiment

Major averages are deep under water despite better-than-expected housing data. The only economic numbers of the day were released early and showed Housing Starts up to an annual rate of 610,000 in September, which was up 2,000 from August and much better than the 579,000 that economists had expected. However, the Dow Jones Industrial Average opened lower under the weight of disappointing earnings news from IBM. Apple Computer (NASDAQ:AAPL) shares also fell on earnings. Meanwhile, a strengthening dollar triggered losses in some of the commodities. Gold gave back more than $30 and crude oil is off $2.25. Making matters worse, BofA (NYSE:BAC) shares are falling to session lows on news the NY Fed has requested that the bank repurchase mortgages. Twenty-nine of the Dow thirty are in the red and the industrial average is off 182 points. The tech-heavy NASDAQ lost 44. With an hour left to trade, the CBOE Volatility Index (.VIX) is up 1.88 to 20.97. Trading in the options market is brisk, with about 7.4 million calls and 7 million puts traded so far.

Bullish Flow

Coca Cola (NYSE:KO) notched a new 52-week high and is the only Dow stock in positive territory Tuesday afternoon. Shares are now up 24 cents to $60.24 after the company reported a quarterly profit of 92 cents per share, which was three cents better than Street estimates. Meanwhile, options volume is running 2X the average daily. 28K calls and 20K puts traded so far. One player has been busy in the Nov 62.5 calls and appears to be looking for additional upside in the short-term. They bought 11,000 contracts at prices up to 30 cents per contract, according to a source on the floor. Jan 47.5 and Nov 57.5 puts are actively traded as well, with 3694 and 3405 traded, respectively, and more than half trading on the bid. Implied volatility in KO is down 6 percent to 15, compared to a 52-week high and low of about 31 and 13.

Bearish Flow

The top options trade so far today is in the iShares Emerging Markets Fund (NYSEARCA:EEM) after one strategist paid 77 cents for EEM Nov 44 puts, 50000X. The hefty premium purchase was tied to 1.5 million shares at $45.73. EEM is now down $1.04 to $45.70 and implied volatility in the emerging markets fund is up 8 percent to 26, compared to a 52-week high and low of 50.5 and 22.5.

Finisar (NASDAQ:FNSR) loses $1.93 to $19.35 and put volume picks up after peer Infinera (NASDAQ:INFN) lowered its earnings guidance late Monday. Dec 20 puts are the most actives and might be seeing some liquidating trades after today’s slide. 1810 traded (60 percent bid). Nov 19, Dec 17.5 and Dec 19 puts are busy as well. 4660 contracts now traded (82 calls) and implied volatility is up about 7 percent to 48. FNSR, a Sunnyvale, CA networking and equipment company, reported its earnings on Sep 2. Shares gapped higher on the results and are up 42.2 percent since that time.

Implied Volatility Mover

Kinetic Concepts (NYSE:KCI) shares lost $3.10 to $35 after a court decided that the company’s patents are invalid and ruled in favor of Advanced Wound Management, a division of Smith & Nephew, Inc. Shares are reeling on the news and options volume is running 48X the recent average daily, with 8,040 puts and 750 calls traded in the name so far. Jan12 30 puts are the most actives. 5190 traded (98 percent Ask), as some players seem concerned about the risk of additional losses in KCI shares through early 2012. Meanwhile, implied volatility jumped 28 percent to 40. The company is also due to report earnings, Oct 26 (before market).