Thursday Options Recap

 |  Includes: AA, SIRI, TEVA, VRGY
by: Frederic Ruffy


Major averages are modestly lower in quiet trading Thursday. Economic news was in focus early and included a barrage of reports. Personal Incomes and Spending rose .3 percent and .4 percent in November. Economists were looking for increases of .2 percent and .5 percent, respectively. A separate report showed orders for Durable Goods falling 1.3 percent last month, which was a little worse than the 1.2 percent decline that had been expected. Weekly jobless claims fell by 3,000 to 420,000 in the period ended 12/18. Economists were looking for an increase of 1,000. Another report showed the University of Michigan Consumer Sentiment Index up to 74.5 in late-December, from 74.2 earlier this month and below economist estimates of 74.8. The latest New Home Sales also fell short of expectations, rising to an annual rate of 290K, vs. expectations of 300K. Meanwhile, the euro came off session highs after Fitch downgraded Portugal. Crude oil has rallied beyond $91.50 a barrel. Bonds fell and yields rose in an abbreviated session in the Treasury market. After closing at it lowest levels since July 2007, CBOE Volatility Index (.VIX) jumped 1.37 to 16.62. Trading in the options market is slowing. 4.2 million calls and 3.6 million puts traded so far. Markets are closed Friday. To all of our readers, fans, and subscribers, thank you for your support. Have a wonderful and safe holiday. See you Monday!

Bullish Flow

Active trading continues in Sirius Satellite (NASDAQ:SIRI). Shares are up 7 cents to $1.67 and today’s options volume includes 38,000 calls and 3,275 puts. The action is scattered across Jan, Feb and Mar 1.5 and 2 calls. Jan12 2 and 3 call options are seeing interest as well. The volume appears to include a fair amount of speculative call buying. Shares are up 30 percent on the week and seemed to get a lift yesterday from news Sirius Satellite will become standard equipment on new BMW bikes (also see yesterday’s 12/22 color on SIRI).

25000 call options have traded in Alcoa (NYSE:AA), which is 11X typical volume for the first 30 minutes of trading and more than 3X the day’s put volume. Shares have added 36 cents to $15.51 and up for a six consecutive trading day, gaining 11.1 percent during that time. In options action, July 15 calls are the most actives. 5700 traded (99 percent ask). Jan 16, Jan 20, and July 16 calls are seeing interest as well. Jan 14s and 15s are the most actively traded put options. Implied volatility is up 6.5 percent to 32.5. There has been no recent news in the aluminum maker and Dow component. The bullishness might be related to comments to Mad Money show host Jim Cramer. He says AA is his top pick in the Dow and the company might get taken out at $22 per share. Also, Alcoa will unofficially kick off the fourth quarter earnings reporting season when it reports results on January 10 (after market).

Bearish Flow

Verigy (NASDAQ:VRGY) adds 90 cents to $13.53 after getting a sweetened $15 per share bid from Advantest. Shares of the Singapore-based chip equipment maker are up and options volume is 7X the average daily, with help from a Jan 13 – 14 bearish risk-reversal, apparently bought to open at a dime, 4950X. It looks tied to 375K shares at $13.55. 11,000 calls and 9200 puts now traded in the name. Implied volatility is down 19 percent, but at 43.5 percent, still seems to reflect some uncertainty about the proposed acquisition. Advantest had initially offered $12.5, but Verigy, which is in the midst of its own acquisition attempt, rejected the bid. Verigy made a move to buy smaller rival LTX Credence in November.

Implied Volatility Mover

TEVA adds $1.65 to $52.85 and options volume is 3.5X the average daily, being led by a buyer of 8,000 Mar 55 calls at $1.20 on ISE. Sentiment data indicate a customer opened a new position. 11,130 traded. Jan 50, 52.5 and 55 calls are seeing interest as well. The Jan 50 is the most actively traded put. 37,000 calls and 14,000 puts now traded in the pharmaceutical maker and implied volatility is up 24 percent to 25. Shares fell early, but then saw a spike on news the FDA issued a response letter for TEVA’s glatiramer acetate sNDA. The FDA could not approve app as submitted, but TEVA intends to continue working closely with FDA to determine the next steps to take with respect to the application.