Tuesday Options Recap

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 |  Includes: AA, COG, PCXCQ, SHLD
by: Frederic Ruffy

Sentiment

Major averages are little changed in a day of lackluster trading Tuesday. The table was set for morning gains on Wall Street after stocks moved broadly higher across Europe on diminishing fears about the unfolding debt crisis. Some of the optimism stems from talk Japan might begin buying sovereign debt of some troubled Euro-zone nations. In the US, the focus is shifting to earnings. Alcoa (NYSE:AA) is trading down 1.3 percent despite posting better-than-expected results. Sears (NASDAQ:SHLD) is rallying, but Supervalu is seeing serious post-earnings weakness. Meanwhile, the only economic stat of the day showed November wholesale inventories down .2 percent. Economists were looking for an increase of .1 percent. Bonds slipped on the news, but stocks showed little reaction. Meanwhile, crude oil bubbled $1.87 higher to $91.12 and gold gained $9 to $1383 an ounce. The Dow Jones Industrial Average is up 29 points and the NASDAQ has added 6. With an hour left to trade, the CBOE Volatility Index (.VIX) is off .39 to 17.15. Trading in the options market is running about the typical levels, with 8 million calls and 5.2 million puts traded so far.

Bullish Flow

Patriot Coal (PCX) shares are smoking Tuesday, up $2.02 to $25.59 and touching new 52-week highs. Options action is heating up as well, with 30,000 calls and 10,000 puts traded in the name through midday. Feb 30 calls are the most actives. 6,420 traded. Jan and Feb 25 calls are busy as well. Implied volatility is up 4.5 percent to 70 and overall flow is bullish after Deutsche Bank initiated coverage on PCX with a Buy rating.

Bearish Flow

AMD shares are off 79 cents to $8.40 and options volume is running 3X the usual today after the company’s CEO Dirk Meyer announced his resignation. Shares are under pressure and calls are being sold. The top trade is 1345 Feb 8 calls at 78 cents when the market was 78 to 80 cents. 15,213 traded (92 percent bid) vs. 14,874 in open interest. Jan and Feb $9 calls are seeing interest as well. Meanwhile, Feb 8 puts have traded 2250X (68 percent ask). Jan 6 and 7.5 puts are trading predominantly at the asking price as well. Overall, the flow seems somewhat bearish and implied volatility is up about 7 percent to 53.5.

Implied Volatility Mover

Cabot Oil and Gas (NYSE:COG) adds 72 cents to $38.32 and one strategist sells the Feb 37 straddle at $3.52, 1980X. Looks opening and possibly a bet that shares will drift towards $37 by the February expiration. Implied volatility is easing 5.5 percent to 35, compared to a 52-week high and low of 63 and 31.