Wednesday Options Recap

by: Frederic Ruffy


Stock market averages are under water, with falling crude oil and earnings news weighing down the Dow Jones Industrial Average. Disney (NYSE:DIS) lost 5.8 percent and is the biggest loser in the Dow after the company’s profit report failed to live up to expectations. Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are also dragging down the industrial average after crude oil slipped for a loss of more than $5 per barrel. Crude is at $98.76 on weekly inventory data and after the buck made a decisive move against its European counter-part. EUR/USD is off 1.5 percent and the dollar index has rebounded .9 percent to 75.3. Metals are also lower on dollar strength. Gold lost $13.40 to $1,503.5 an ounce and silver gave up $3.16 to $35.33. Meanwhile, the day’s economic news included a March Trade Balance of -$48.2 billion, wider than the $45.4 billion in February and more than the $47.7 billion that was expected. However, domestic economic news is taking a backseat to the action in the currency and commodities markets. The Dow Jones Industrial Average is down 160 points and the tech-heavy NASDAQ gave up 33.7. CBOE Volatility Index (.VIX) added 1.38 to 17.29. Trading in the options market is somewhat defensive, with 7.6 million calls and 6.9 million puts traded across the nine exchanges thus far.

Bullish Flow

Level 3 (NASDAQ:LVLT) shares notch a new 52-week high of $1.93 today. The stock is up a dime to $1.89 and in the midst of a four-day 19 percent run higher. The stock’s upward trajectory has caught the attention of players in the options market. 9,130 calls and 900 puts traded in the Broomfield, CO communication services company. January 2013 $2 calls are the most actives. 1,570 traded (93 percent Ask). Jun 1.5, Jun 2, Sep 1.5, and Sep 2 calls are seeing similar action. Shares are up today after HBO selected the company to deliver network services for the HBO GO Mobile app.

SPDR Technology ETF (NYSEARCA:XLK) is off a nickel to $26.78. Today’s options volume of 52,000 calls and 200 puts is 3X the average daily. The volume is heavily concentrated in May 27 calls. Volume is approaching 47,000 contracts. The XLK May 27 call option is .8 percent out-of-the-money and expires at the end of next week. It has open interest of 19,723 and a delta of .37. Investors appear to be paying 15 and 16 cents per contract to open positions, perhaps looking for Cisco’s earnings to lift the tech sector in the short-term. The networking giant is slated to release earnings after the closing bell today.

Bearish Flow

SPDR Oil Exploration and Production Fund (NYSEARCA:XOP), which holds shares of major oil companies like Chevron, Conoco and Exxon, is down $2.56 to $57.92 and puts on the ETF are seeing interest for a second day. Shares are under pressure following an impressive slide in oil prices today. Crude is down $5.11 to $98.98 per barrel on bearish weekly inventory data and a rebound in the buck. Yesterday, some investors were buying XOP Dec 56 puts. Today, the focus has shifted to the Sep 47 puts. 22,130 traded and 100 percent traded at the ask. Also of note in XOP today: a Dec 59 - 62 strangle, bought-to-open at $9.90 per contract, 8500X. Implied volatility in the ETF has jumped 15 percent to 32.

Implied volatility Mover

45,000 calls and 25,000 puts traded in Macy’s in morning trading Wednesday. Shares are up $2.33 to $28.66 after the retailer reported quarterly earnings of 30 cents per share, which was 11 cents better than Street estimates. Macy’s also raised full year guidance and announced plans to increase its dividend. Shares are up and the top options trade is a Jun 23 – 37 strangle, apparently bought at $1.87. It was tied to 670K shares and likely closes a position opened last week when the same strangle was sold at 79 cents, 10000X. While the strategist is taking a loss on the strangle, they’re likely banking a larger profit on the stock position after today’s post earnings rally in Macy’s shares. Implied volatility is down 6 percent to 34.