Tuesday Options Recap

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 |  Includes: ABX, OXY, PCP, WMB, WMT
by: Frederic Ruffy

Sentiment

Major averages opened higher on news President Obama was extending Bush tax cuts two more years, but have come off session highs following a day of bloodletting in the bond market. The benchmark Ten-year Treasury bond is down 2 full points and its yield has rallied to 3.156 percent from 2.929 percent late-Monday. The ten-year fell early on news of the tax cuts and the selling gather additional momentum following a poor auction of 3-year notes. Gold and oil, which traded higher early, also gave back gains and fell into the red through midday. The Dow Jones Industrial Average is clinging to an 18-point range but is under pressure, down 70 points from session highs. The CBOE Volatility Index (.VIX) is off .10 to 17.92 and near its best levels of the day.

Bullish Flow

8.91 million calls and 4.74 million puts traded through 13:30 eastern time, which is about 1.5X the typical volume. The put-to-call ratio has fallen to .53. Heavy trading in Citi is one reason. 1.78 million calls have traded on the bank, which is almost 20 percent of the day’s total call volume. Meanwhile, another 1.25 million calls have traded in Wal-mart (NYSE:WMT), Occidental Pete (NYSE:OXY), and Williams Companies (NYSE:WMB) due to ex-div activity. Stripping out the ex-div names, the put to call ratio is .62, well below a 10-day average of .72.

From Henry Schwartz. H and R Block option volume in front of tonight’s earnings is running 8x normal pace, with 33000 contracts trading by 1pm and front term IV up more than 20 points to 75% at the money. Premium buyers dominate with a generally bullish directional bias to the flow. An early sweep buyer paid 24 cents for 8500 Dec 14 calls when shares were near 13.30, and more recently a buyer of Dec 13 puts 5700x for 55cents with shares near 13.49. Yesterday's Dec IV suggested an implied earnings deviation of about 6%, while today’s spike in front IV now prices a daily deviation near 11%.

Bearish Flow

Barrick Gold (NYSE:ABX) notched a new 52-week high early Tuesday, but is down 18 cents to $54.65 after gold gave back early gains and fell into the red. Gold (March) hit record highs ($1432.5) early, but is down $5.50 to $1,410.60 an ounce. Meanwhile, a noteworthy options trade in ABX today is a seller of 10,000 Jan12 65 calls at $4.40 per contract. It was tied to 380K shares at $54.62 and looks like a new position in these calls, which are 19 percent out-of-the-money.

Implied Volatility Mover

Titanium Metals (TIE) adds 47 cents to $18.71. Meanwhile, December calls are actively traded and implied volatility is moving up. Dec 19s are the most actives. 2882 traded (81 percent ask). Dec 20 and 22.5 calls are seeing interest as well. 8100 calls and 400 puts traded in the name, or 3.5X the recent average daily. Implied volatility is up about 6 percent to 43.