Wednesday Options Recap

by: Frederic Ruffy


Stocks are trading mixed in uninspired fashion late Wednesday. Economic data was in focus early after ADP reported that the US economy added 187,000 private sector jobs in January, which was about 40,000 more than expected. However, after 148-point rally and a move beyond 12,000 yesterday, the Dow Jones Industrial Average struggled at the open following a round of mixed earnings news. While Electronic Arts (ERTS) and Time Warner (NYSE:TWX) are up on better-than-expected results, Broadcom (BRCM) and Genworth (NYSE:GNW) are suffering post-earnings losses. Weakness in bonds, and the ten-year yield approaching 3.5 percent, might be weighing on sentiment as well. Monthly same store sales are due tomorrow and key payroll data is slated for Friday. So, event risk looms. In addition, traders are also watching events in Egypt, where civil unrest appears to be escalating and spreading to other Arab nations as well. The Dow Jones Industrial Average is flat and the tech-heavy NASDAQ has lost 2.2. The CBOE Volatility Index (.VIX) is down .27 to 17.36 on a day of quiet trading in the index pits due to the massive storm pummeling Chicago. Overall volume is light. With thirty minutes left to trade, 8.4 million calls and 5.4 million puts traded so far.

Bullish Flow

JA Solar (NASDAQ:JASO) rallies at the open and is trading up 39 cents, near session highs, at $7.32. Meanwhile, JASO calls are shining, with 10K traded. The volume is 8X the normal and compares to put volume of 245 contracts. The top trade is a block of 2000 Jun 9 calls at 40 cents on CBOE when the market was 35 to 40 cents. A block of 1,669 Mar 7 calls traded at 70 cents when the market was 65 to 70 cents. March 8 calls are the most actives and have traded mostly in smaller lots on the bid. The biggest trade is 149 contracts at 25 cents. Implied volatility is up 5 percent to 64.5, with earnings expected around Feb 10 (unconfirmed).

Big Prints in GE early Wednesday. Shares notched a new 52-week high of $20.96, but are now down a dime to $20.70. In options action, one strategist paid a penny for the Mar 20 – Jan 22.5 call spread, 20000X and is possibly closing, or setting up a diagonal spread or, most likely, rolling a bullish position from in-the-money March 20 calls to January 2012 OTM 22.5s.

The top options trades so far today are in Citi (NYSE:C), which is trading down 3 pennies to $4.88, after one strategist paid 9 cents for the Jun 5.5 – 6 call spread, 125000X on CBOE.

Bearish Flow

Costco (NASDAQ:COST) loses 44 cents to $71.99 and options volume is 6X the average daily, led by a block of 19,500 Mar 70 puts at $1.13 on ISE, which is an opening customer buyer, according to ISEE data. 23,045 traded. Another 2286 Mar 72.5 puts changed hands, which also looks opening. Implied volatility is flat at 18.5. COST last reported earnings on 12/8. Shares are up 4 percent since that time. Monthly same store sales numbers due tomorrow morning.

Implied Volatility Mover

Salix Pharmaceuticals (NASDAQ:SLXP) loses 91 cents to $40.50 and an investor buys a block of 10000 March 37 puts at $2.80. It was tied to 280K shares at $41.55. Separately, a Mar 35 – 40 put spread is bought at $2.05, 1350X. The spread has now traded 2500X and, like the March 37 put purchase, might be a short-term hedge ahead of a March 7 PDUFA date for Xifaxan (label expansion). The same spread traded at $1.55 last week as well (see 1/25 color — premium). Implied volatility is up 30 percent to 77.