Tuesday Options Recap

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 |  Includes: ANN, FDX, JCP
by: Frederic Ruffy

Sentiment

The underlying tone of trading remains cautious amid ongoing worries about the unfolding European Debt Crisis. The domestic news was mostly positive. Data released 15 minutes into trading showed the Chicago PMI index at 62.5 in November. Economists were expecting the gauge of manufacturing activity to fall to 59.6, from 60.6 in October. Separate data showed the Conference Board’s Consumer Confidence Index at 54.1 in November, from 49.9 last month and compared to economist estimates of 52.0. Yet, with the euro once again under pressure and major averages closing mostly lower across the Euro-zone, stocks are struggling again late-Tuesday. The Dow Jones Industrial Average is down 13 points and the tech-heavy NASDAQ lost 22.5. The CBOE Volatility Index (.VIX) added 1.38 to 22.91. Trading in the options market is on the slow side, with about 6.3 million calls and 5.2 million puts traded so far.

Bullish Flow

UPS adds 31 cents to $70.30 and is perhaps getting a lift from yesterday’s Credit Suisse upgrade of FedEx (NYSE:FDX). Shares of FedEx are up 5 percent on the week. Meanwhile, options action is heating up in UPS Tuesday. 31,000 calls and 7,000 puts traded on the shipping company through midday. The top trade is a block of 3773 Dec 72.5 calls at 37 cents on CBOE when the market was 34 to 38 cents. 13,371 now traded vs. 4,958 in open interest. Dec 70, Jan 70, Jan 72.5 and Jan 75 calls are seeing interest as well. Implied volatility is up 5 percent to 21.

Relative strength and bullish trading in Ann Taylor (NYSE:ANN) Tuesday. Shares saw a spike on increasing volume about 25 minutes ago and are now up 48 cents to $26.30. The top trade is a block of 1378 Jan 28 calls at $1.30 on ISE and an opening customer buyer, according to ISEE data. 5,550 now traded. Implied vols up 2 percent to 51. No headlines on the stock. Looks like speculative call buying in the retailer.

Bearish Flow

JC Penney (NYSE:JCP) adds 31 cents to $33.08 and one strategist apparently buys-to-open a Dec 30 – 33 put spread at 91 cents, 2000X on AMEX. This might be a play on the retailer’s same store sales numbers, due out Thursday, Dec 2. JCP fell 3.4 percent when the company reported earnings on 11/12, but has since recovered the losses and is up 6.1 percent since that time.

Implied Volatility Mover

CBOE Volatility Index (.VIX) hit a high of 23.55 Tuesday morning, but was recently up 1.00 to 22.53. VIX is up 1.33 points on the month. Meanwhile, 143,000 puts and 70,000 calls traded on the volatility index through midday. One of the top trades is a Jan 27.5 – 35 call ratio backspread, in which the investor sold 10,000 Jan 27.5s at $2.20 to buy 20,000 Jan 35s at $1.05. 10 cents was collected and possibly closes a ratio spread, as open interest is sufficient to cover in both contracts. In fact, the Jan 35s, with open interest of 260K, are the largest open position in VIX, and followed by the Jan 27.5s, with 181K of OI.