Wednesday Options Recap

Includes: AA, C, GOOG, JPM, MGM, YHOO
by: Frederic Ruffy


Stock market averages are holding modest gains late-Wednesday. Today’s economic news was mostly uninspiring after data showed Retail Sales increasing by .4 percent in March and .1 percent less than expected. Similarly, Business Inventories rose .5 percent in February and .3 percent less-than-expected. Meanwhile, JP Morgan (NYSE:JPM) rallied early on better-than-expected earnings, but gave up the gains and is trading down .6 percent. However, the Dow Jones Industrial Average seemed to get a bit of lift in afternoon trading after the Fed’s Beige Book was released. The report from the twelve Federal Reserve Districts showed generally improving economic conditions. Overall market action is somewhat sluggish today, however, and the Dow Jones Industrial Average is up 22 points in the final hour. The tech-heavy NASDAQ gained 20. The CBOE Volatility Index (.VIX) gave up .59 and is probing multi-week lows at 16.50. Overall options volume is running about the normal levels, with 7.9 million calls and 6.2 million puts traded so far.

Bullish Flow

The largest equity options trades through midday Wednesday are in Alcoa (NYSE:AA), which lost 6 percent on earnings news yesterday. AA is down another 9 cents to $16.61 and one investor sold the Apr – May 18 put spread at 18 cents, 13000X. This looks like a roll out an additional month ahead of the April expiration. Since the contract is now $1.39 in-the-money, the investor is possibly closing out the position to avoid assignment on the Apr puts. Earlier in the day, an Apr – July put spread was sold at 29 cents, 8000X, and more recently, an April – May 17 put spread was sold at 43 cents, 8400X. Consequently, 79000 puts and 21000 calls traded in the aluminum maker, but the flow isn’t bearish since it seems to involve a lot of rolling of short puts from April to later months.

Yahoo (NASDAQ:YHOO) adds 23 cents to $16.59 in morning trading and it looks like the Jul 15 – 19 call spread is bought at $1.62, 3970X on ISE. 5,800 now traded. While open interest is sufficient to cover, ISEE data indicate that half are opening buyers. The bullish trading comes ahead of earnings, April 19. Rival Google (NASDAQ:GOOG) reports after the closing bell tomorrow.

Bearish Flow

Big Prints in Citi (NYSE:C), which is down 7 cents to $4.49. One investor sold the Sep 4.5 – 5 call spread to buy Sep 4 puts, collecting 5 cents, 45000X. It might close positions opened in mid-March when the same three-way traded multiple times at even money (3/17). Citi is due to report earnings the morning of April 18.

Implied volatility Mover

MGM is rallying and options are actively traded after the company announced plans for an IPO of a Macau Joint Venture. MGM will own 51 percent of MGM China Holdings after its offering on the Hong Kong Stock Exchange. Shares are up $1 to $13.62 on the news and options volume is 3X the average daily. 87,000 calls and 26,000 puts traded in the name. April 14 calls, which are now 33 cents OTM and expire later this week, are the most actives. 21,935 traded. April 13 puts and calls are the net most actives. The top trade is a 10,000-contract block of Jan 12.5 calls at $2.84 and possibly a sold-to-close order after today’s 8.3 percent rally in the stock price. Earnings will soon come into play as well, expected around May 5. Implied volatility in MGM options is up about 8 percent to 44.