Monday Options Recap

by: Frederic Ruffy


Stocks fell in morning trading after S&P cut the United States' credit rating, but stock market averages have moved well off session lows. The ratings cut was announced thirty minutes before the opening bell, and as stock index futures were already in negative territory on concerns about a rate hike in China, the European Debt Crisis and an uninspiring profit report from Citigroup (NYSE:C). Stock index futures fell further on the downgrade and the Dow Jones Industrial Average lost almost 250 points in morning trading. The decline was relatively orderly, however, and the situation had stabilized by midday. In the final hour, the Dow is down 162 points and 96 points off session lows. The tech-heavy NASDAQ lost 38 points. The CBOE Volatility Index (.VIX) rallied up to a morning high of 19.07 and was recently up 1.98 to 17.30. Trading in the options market is active, with 8 million calls and 7.3 million puts traded.

Bullish Flow

Akamai (NASDAQ:AKAM) showed relative strength and increasing call volume. Shares are up $1.42 to $39.51 and 25,000 calls traded, which is 4X the norm and 3X the day’s put volume. May 45 calls are the most actives. 4,500 traded (54 percent Ask). May 40 and 41 calls are busy as well. No news on the stock. The activity hints at possible chatter or is possibly a play on earnings, due April 27 (after market).

Las Vegas Sands (NYSE:LVS) loses a nickel to $44.08 and one investor pays 63 cents for the May 47 – 50 call spread, 30000X in midday trading. It might roll a position down in strikes, as open interest in the May 50 calls is 36,851 and the second largest position in the name. The contract saw interest on April 7 as well, when nearly 20,000 traded and investors were apparently rolling out of April 45 calls (see 4/7 color). The bullish trading might be a play on earnings, due early-May.

Bearish Flow

Cisco Systems (NASDAQ:CSCO) slides to a new 52-week low and is down 36 cents to $16.67. In options action, one investor bought a 20000-contract block of June 15 puts at 21 cents each. Hearing it was tied to stock at $16.63 (on 17 delta) and is possibly closing as open interest is 27,270. Total volume in Cisco is heavy, with 55,000 calls and 60,000 changed hands so far.

Implied Volatility Mover

CBOE Volatility Index (.VIX) has sprung back to life after S&P offered investors a Monday morning surprise and revised US credit rating to Negative. The news came thirty minutes before the opening bell on Wall Street and stock index futures, which had already fallen into the red in pre-market action, sold off sharply. The table was then set for increased volatility at the open. VIX is up 3.34 points to 18.66 and May 40 calls on the volatility index are seeing some early action. 2,607 traded. The Apr 19s, which expire Wednesday, have traded almost 2000 contracts.

Unusual Volume Movers

Bearish activity detected in Quanta Services (NYSE:PWR), with 4721 puts trading, or 10x the recent avg daily put volume in the name.

Bullish flow detected in Celgene (NASDAQ:CELG), with 14540 calls trading, or 4x the recent avg daily call volume in the name.

Bullish flow detected in Focus Media (NASDAQ:FMCN), with 8000 calls trading, or 4x the recent avg daily call volume in the name.

Increasing volume is also being seen in Johnson & Johnson (NYSE:JNJ), AMD (NYSE:AMD), and Sara Lee (SLE).