Wednesday Options Recap

 |  Includes: BBRY, CHK, MNKD, XOM
by: Frederic Ruffy


Stocks slipped on higher bond yields Wednesday. The table was set for morning gains on Wall Street after data showed the Consumer Price Index [CPI] up .1 percent in November, which was half as much as expected, and a separate report showed the NY Empire Index with surprise improvement to 10.57 in December, from –11.14 the month before. Economists were looking for the gauge of regional manufacturing activity to improve to 3.0. The latest Industrial Production report showed an uptick of .4 percent in November and slightly better than forecasts (.3 percent). However, the NAHB Homebuilder Sentiment Index [HMI] showed no improvement in December. It remained unchanged at 16, compared to economist forecasts of 17. Meanwhile, the benchmark ten-year Treasury, which moved up early, is back under pressure and lost another 8/32nd after the Senate passed the tax cut compromise. The yield on the ten-year is now at four-month highs of 3.52 percent, from about 2.95 percent last Monday. The relentless rise in yields is weighing on equities. The Dow Jones Industrial Average has given up early gains and is down 10 points. The NASDAQ lost 11. With forty-five minutes left to trade, the CBOE Volatility Index (.VIX) is up .42 to 18.03 and well off session lows of 17.37. Trading in the options market is running about typical levels, but likely to pick up tomorrow due to the upcoming quadruple witch expiration. 7.1 million calls and 5.5 million puts traded so far.

Bullish Flow

Exxon Mobile (NYSE:XOM) loses 20 cents to $71.98 and is one of 18 Dow stocks trading lower late-Wednesday. Earlier in the session, a block of 20000 Jan 72.5 calls traded at $1.26 on ISE. An opening customer buyer initiated the trade, according to ISEE data. Doesn't look tied and appears to be a bullish play on the oil giant. Shares gapped higher when earnings were last reported on 10/28 and are up nearly 10 percent since that time. Meanwhile, crude (Jan) hit a high of $89.09 on bullish inventory data today, and was recently up 25 cents to $88.53 a barrel.

Steve Smith notes that: Chesapeake (NYSE:CHK) shares are up 35c to $23.37 and saw sweep buyers of the Jan. $24 calls, as total of 10,038 trade between 58c-61c early Wednesday. Open interest is sufficient to cover, as a total of 11,775 have now traded, vs. 19,063 in OI. So, today’s action might be closing after an 11.2 percent rally in shares so far in December.

Bearish Flow

Pre-earnings action in RIMM, with 52000 calls and 72000 puts traded so far. Shares are off $1.45 to $59 and the top trades are two blocks (9591 and 9000) Jan 50 puts at 66 cents on AMEX when bid-ask was 63 to 66 cents. Looks like put buyers. More than 23000 traded. Players are also taking positions in Dec 60, 62.5 and 65 calls, as well as Dec 60 puts. Implied volatility is up 2.5 percent to 44.5 ahead of the results, tomorrow after market.

Implied Volatility Mover

MannKind (NASDAQ:MNKD) options are actively traded and implied volatility is elevated heading into a December 29 PDUFA for the company’s Afrezza. There seems to be some optimism building, as shares are up 54 cents to $9 today and 63.3 percent since earnings were reported on 11/4. Meanwhile, 26K calls and 11K puts traded in the biotech so far, or 2.5X the recent average daily. The top trade of the day is a Jan $9 – $10 call spread sold at 34 cents, 2735X and might be a roll of at-the-money calls to out-of-the-money calls. Jan 9 puts, Jan 15 calls, and even Jan 2.5 puts are seeing interest, as players jockey for position ahead of the news. Implied volatility is up another 9 percent to 226 and within striking distance of recent 52-week highs (232).