Monday Options Recap

 |  Includes: AA, BAC, INTC, KO, UNG, XLNX, YHOO
by: Frederic Ruffy


Stock market averages are solidly higher on the first day of trading in 2011. The earnings calendar is light this week and economic news will probably be the primary driver of market action. Today’s data showed the ISM manufacturing index up for a 17th straight month, to 57 in December. Economists were looking for an increase to 57.3. Separate data showed Construction Spending up .4 percent in November, and twice as much as expected. Factory orders and auto/truck sales are due tomorrow before the FOMC concludes its latest meeting on interest rates Tuesday afternoon. Meanwhile, BofA (NYSE:BAC) is leading the Dow on news of a settlement with Freddie and Fannie. Alcoa (NYSE:AA) is also helping the industrial average on an analyst upgrade. 28 Dow stocks are higher, only Coke (NYSE:KO) and Intel (NASDAQ:INTC) are in the red, and the industrial average is up 117 points. The NASDAQ has added 39.5. Heading into the final hour, the CBOE Volatility Index (.VIX) lost .33 to 17.42. Options action is picking up from the very low levels seen during the final week of 2010. 8.5 million calls and 5.6 million puts traded so far.

Bullish Flow

Alcoa (AA) shares are up 54 cents to $15.93 and options volume is 2.5X the average daily after Deutsche Bank upgraded shares of the aluminum maker to Buy. 81000 calls and 36000 puts traded so far. Overall sentiment seems mixed. The top trade is 2525 April 16 calls on the $1.21 bid. Jan 16 calls are the most actives. 25400 traded (39 percent bid, 53 percent ask). Jan 14 puts are busy as well. 10740 traded (22 percent bid, 69 percent ask). Implied volatility is up 6 percent to 36, as investors now set their sights on earnings. Alcoa unofficially kicks off the fourth quarter reporting season next Monday (after market).

Yahoo (NASDAQ:YHOO) adds 13 cents to $16.76 and a block of 17,000 Jan 17.5 calls bought at 27 cents was tied to 1.7 million shares at $16.75 and possibly exits a buy-write. Open interest in the Jan 17.5 calls is 183,300 and currently the biggest open interest position in Yahoo. 24,198 contracts now traded.

Bearish Flow

US Natural Gas Fund (NYSEARCA:UNG) adds 28 cents to $6.28 and it looks like some investors expect shares to run out of fuel in the weeks ahead, as the Feb 5 – 6 put spread is being bought today. 5,500 traded at 25 cents. More than 30000 total. Meanwhile, Jan 6 and Jan 7 calls have both traded more than 20000X and might be liquidating trades. Most of the action has been in smaller lots and open interest is sufficient to cover in both contracts. After gaining 6.5 percent last week, natural gas (Feb) is up 20 cents to $4.61 today.

Implied Volatility Mover

Bearish activity detected in Xilinx (NASDAQ:XLNX), with 6344 puts trading, or 2x the recent avg daily put volume in the name. Shares have added 47 cents to $29.45 and 4,230 June 23 puts have changed hands. Implied volatility is up 3.5 percent to 27.5. It might be a play on earnings, due Jan 19 (after market).