Wednesday Options Recap

by: Frederic Ruffy


Stocks are holding gains after Federal Reserve officials concluded their latest meeting and signaled no real changes in monetary policy. As expected, rates were left alone. The Fed also said it was ending its QE2 bond buyback program amid signs of mounting inflationary pressures. However, the outlook for 2011 growth was scaled back and officials retained their pledge to keep rates low for an “extended period”. Beyond the Fed, the early focus was on a March Durable Goods report that was a better-than-expected 2.5 percent. Economists were expecting 1.8 percent. The profit news remains mostly supportive as well, with (NASDAQ:AMZN), Corning (NYSE:GLW), and Dow component Boeing (NYSE:BA) seeing post-earnings gains today. The Dow Jones Industrial Average is up 66 points and not far from session highs. The tech-heavy NASDAQ added 14.4. The CBOE Volatility Index (.VIX) has eased .18 to 15.44 now that the Fed event risk has passed. Trading in the options market is running about the norm, with 8.3 million calls and 6.2 million puts traded across the nine options exchanges so far.

Bullish Flow

LM Ericsson (NASDAQ:ERIC) is up $1.62 to $14.76 and ERIC calls are seeing active trading today after the company reported earnings that topped analyst estimates. 12,500 July 15s have changed hands. Most of the action has been smaller sizes. The top trade is a 388-lot at the 55-cent asking price. It was part of a multi-exchange sweep of 697 contracts. Of the total volume, 51 percent has traded at the ask. While some investors are possibly opening new positions, others might be initiating closing trades. Open interest in the Jul 15 call is 20,015 contracts and the largest position in the Swedish telecomm. The contract is now 1.6 percent out-of-the-money with a delta of .46.

Baker Hughes (NYSE:BHI) is up $3.31 to $77.37 and touching new 52-week highs today after the oil driller reported earnings of 87 cents per share, which was 9 cents better-than-expected. In options action, a noteworthy options spread traded this morning after an investor sold 14,000 July 65 calls at $12.925 each and bought 20,000 July 75 calls at $5.50. It might exit a position opened in early-January when the same spread saw opening action. Shares were at $55.60 at the time.

Bearish Flow

Ecolabs (NYSE:ECL) adds 16 cents to $51.89 and the May 45 – 50 put spread is sold at 20 cents, 19000X. It likely closes a position opened last week when the same spread traded 19000X at 75 cents. The company reported earnings yesterday. The stock showed little reaction to the news and is up 1.4 percent since the original trade was initiated. Falling implied volatility and slippage have also taken a toll on the put spread. Ouch.

Implied Volatility Mover

The beat-down in Longtop Financial (NYSE:LFT) continues. Shares sank 12.9 percent yesterday and are down another 14.2 percent to $19.08 today. The catalyst for yesterday's decline was a cautionary research note from Citron Research. However, the recent decline dates back to the beginning of the month. Shares are down 40 percent month-to-date. LFT options remain heavily traded as well, with 21,000 calls and 25,000 puts on the tape so far today. The action is scattered in reaction to the big move in the stock. May 20 puts and calls are the most actives. Meanwhile, implied volatility is up 22 percent to 128 and new records for the Hong Kong-based financial software developer.