Wednesday Options Recap

 |  Includes: CSCO, GSK, OUTR, RCPI
by: Frederic Ruffy


Stocks are mixed in cautious trading Wednesday. Much of the focus is on oil, where concerns about bubbling crude prices have thwarted any real rally attempts on Wall Street over the past two weeks. WTI Crude (April) hit a high of $105.92 per barrel Wednesday morning, but was recently down 86 cents to $104.16. The only economic stat of the day, a report on Wholesale Inventories, was a non-event. Meanwhile, IBM is trading up 2.6 percent and helping the Dow Jones Industrial Average on the heels of the computer maker’s Analyst day. The Dow is up 10 points heading into the final hour. However, the tech-heavy NASDAQ lost 11.5. The CBOE Volatility Index (.VIX) edged up .08 to 19.90. Trading in the options market is kind of slow today, with 6.4 million calls and 5.3 million puts traded so far.

Bullish Flow

Coinstar (NASDAQ:CSTR), which saw bearish flow yesterday on reports Warner Bros is planning movie rental and sales over Facebook, is up 83 cents to $43.01 and order flow is decidedly more bullish today. Gains in the shares are being attributed to a Detweiler report mentioning a possible deal with Wal-mart (Briefing). Meanwhile, March 45 calls are the most actives. 1037 traded (79 percent Ask). Looks like upside call buyers in Mar 47.5 and 50s as well. Implied volatility is up 4 percent to 52.

Brisk trading continues in Star Scientific (CIGX). As noted yesterday, April and August $2 calls were busy Tuesday (see 3/8 color). Today, shares have rallied 38 cents, or 19 percent, to $2.43 on no obvious news headlines. Meanwhile, today's options volume is 14000 calls and 270 puts, or 7X the average daily. The trading is scattered across a variety of contracts. Mar 2s traded 4900 contracts and are the most actives. Jan and Aug 2.5 calls are busy as well. Implied volatility is up another 7 percent to 101. Shares of the cigarette maker have now rallied 35.6 percent since the FDA said menthol doesn't increase smoker risk on March 1.

Bearish Flow

Cisco Systems (NASDAQ:CSCO) is off 6 cents to $18.16 and the CSCO April 17 put is the most actively traded equity options contract in the first hour of trading today. The top trade is 2015-contract block at the 20-cent asking price (market was 19 to 20 cents). The next biggest is a 529-lot, also at 20 cents. Beyond that, most of the action has been smaller sizes. 13,252 traded vs. 29,907 in open interest. The puts are currently 6.3 percent out-of-the-money and have a delta of -.21. April equity options expire in 37 days and CSCO earnings will not come in to play prior to the expiration, as the company is expected to report around May 12. Meanwhile, implied volatility in Cisco has been steady in recent weeks in the mid-20s, compared to a 52-week high and low of 45 and 20. Shares are down nearly 35 percent over the past ten months and have taken a hit after each of the past four earnings releases.

Implied Volatility Mover

Glaxo (NYSE:GSK) is up 32 cents to $38.48 and GSK puts are busy for a second day. The focus yesterday was in the Mar 37 puts, which traded 93 percent at the ask and created 5,948 contracts of new open interest. At 7,297, it’s now the largest position in the name. March 38 puts are today’s most actives. 5,798 traded (94 percent Ask) and open interest is 1,913. Implied volatility is up 5 percent to 22.5, as some investors seem concerned about possible downside in GSK shares through the March expiration (next week). It’s probably a play on HGSI’s lupus drug (decision expected March 10). According to Dow Jones, “Benlysta is one of the most important new drugs in Glaxo’s pipeline”.