Tuesday Options Recap

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 |  Includes: ACL, ADBE, MATK, NVS, QCOM, TSRA
by: Frederic Ruffy

Sentiment

Major averages are holding gains in another day of quiet trading Tuesday. With no economic stats to guide the action, stocks opened higher after TD Bank announced plans to buy Chrysler Financial and Dutch chemical maker made a play on Martek Biosciences (MATK). In addition to the latest round of corporate dealmaking, Adobe (NASDAQ:ADBE) was trading higher after reporting better-than-expected earnings late-Monday. The Dow Jones Industrial Average opened higher in reaction to the day’s stock news, traded in a narrow 66-piont range, and is up 50 points heading into the final hour. The NASDAQ has added 17. The CBOE Volatility Index (.VIX) is flat at 16.41. Options volume is slowing due to the upcoming holiday, but heavy ex-div activity in GE has distorted the action. 10.3 million calls and 4.1 million puts traded so far.

Bullish Flow

Tessera Tech (NASDAQ:TSRA) sees a morning spike to $22 on news of a patent win against Qualcomm (NASDAQ:QCOM). Shares are now up 92 cents to $21.56 and options volume is running 7.5X the average daily, with 6,180 calls and 2,175 puts traded. Jan 21, 22.5, and 24 calls are the most actives. Feb 21 and 22s are the most active puts. Implied volatility is down 6.5 percent to 29 and falling to new 52-week lows.

AMR adds 18 cents to $8.09 and it appears that the Aug $9 straddle is sold to open at $2.74, 2000X, perhaps a bet that shares of the airliner will drift towards $9 through Aug 2011.

Bearish Flow

Alcon (NYSE:ACL) adds 20 cents to $161.90 and a block of 4,650 Feb 120 puts trades at 15 cents when the market was .01 to 15 cents. 5,036 traded vs. 53 contracts in open interest. Looks like disaster insurance should for some reason the deal with Novartis (NYSE:NVS) fall apart. ACL shares jumped last Wednesday after Novartis said it would take full ownership of the company for $12.9 billion. Novartis previously owned 77 percent of Alcon. The deal to take full ownership is expected to close in the first half of 2011, but is still subject to US regulatory and shareholder approval — Reuters.

Implied Volatility Mover

CBOE Volatility Index (.VIX) edges down .19 to 16.22 and the VIX Jan 27.5 – 35 call (1X2) call ratio spread is seeing interest. It traded at a dime, 7400X and at 15 cents, 10642X. Looks buyer-initiated and possibly to hedge the risk of increasing volatility from now through the VIX Jan expiration (28 days). VIX Jan 35 calls have now traded 37100X and are today’s most actively traded options contract so far.