Wednesday Options Recap

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 |  Includes: BTUUQ, EWJ, EWY, PEET
by: Frederic Ruffy

Sentiment

There’s been a seismic shift in investor sentiment over the past few days. 13 million calls and 10.7 million puts traded across the exchanges so far today. The total put-call ratio has subsequently risen to 1.21 and its highest levels since July of last year. The CBOE Volatility Index (.VIX) added 3.60 to 27.92. The “fear gauge” rallied beyond 30 for the first time since July 2010. Investors are grappling with a number of worries, including a very poor reading on new housing starts, the unfolding nuke crisis in Japan, the European debt problems, and ongoing unrest in Middle East/North Africa. Contagion is in full swing, as sell-offs in equity markets moves across the continents. Although Japan’s Nikkei recaptured 5.7 percent overnight, index futures point to another aggressive round of selling when trading resumes Thursday. Europe’s equity markets finished broadly lower. The Dow Jones Industrial Average is down 175 points and the tech-heavy NASDAQ lost 30.5.

Bullish Flow

Peets Coffee and Tea (NASDAQ:PEET) adds 96 cents to $46.97 and the Jun 50 - 55 call spread trades at $1.75, 500X, and 420X. More than 1000 in both contracts now traded and looks like opening activity. Shares rallied 9.4 percent yesterday after Dealreporter wrote an article detailing discussions between PEET and Starbucks.

Peabody Energy (BTU) is trading up $3.21 to $68.34, as the prospect that nuclear projects might be taken off the shelf has increased interest in some of the coal names. 26000 calls and 12000 puts now traded in Peabody, or 2.5X the average daily. March 70 calls are the most actives. 6,000 traded and some of the action might be closing. The contract is bid at 53 cents, is 2.4 percent out-of-the-money, and has two days of life remaining after today. The rest of the action is scattered, with April and June calls seeing active trading. Implied volatility in BTU is up 2.5 percent to 45.

Bearish Flow

iShares South Korea Fund (NYSEARCA:EWY), which saw heavy trading in its March 54 puts yesterday (see 3/15 color), is down 19 cents to $57.51 and the focus is now on March 55 puts. One player recently paid 16 cents per contract on 24000. 25287 now traded. Like yesterday, the action looks opening and to reflect concerns about additional losses in South Korea’s equity markets before the weekend and the March expiration.

Implied Volatility Mover

A couple of noteworthy recent trades in the iShares Japan Fund (NYSEARCA:EWJ), which is down another 33 cents to $9.70. One investor sold 100,000 April 10 calls at 41 cents each and might have closed positions opened yesterday, when 200K were bought in late-day action. Open interest in the April 10 calls increased by 138,732 after yesterday’s record volume in EWJ and, at 198,929, is now the largest position in the ETF. Another recent trade is an April 7 – 8 – 9 put fly bought at 11 cents, 13600X. The spread is a bearish play, as it makes its best profits if shares fall to $8 by the April expiration, a decline of 17.5 percent in 30 days. Implied volatility in the Japan fund is up 9 percent to 50 and moving to new 52-week highs. It’s up 175 percent since before the world’s third largest economy was hit with a triple whammy — earthquake, tsunami, and nuke crisis.