Tuesday Options Recap

 |  Includes: BBY, CSCO, FDS, JCP
by: Frederic Ruffy


Stocks are broadly higher with help from retail sales numbers Tuesday. Data released before the opening bell showed total retail sales down 0.2 percent in May. The decline was the first in 11 months, but was not as bad as the 0.7 percent drop that economists had expected. Meanwhile, the Producer Price Index (PPI) was 0.2 percent in May (vs. 0.1 percent consensus) and business inventories rose 0.8 percent (vs. expectations for a 1 percent increase).

The focus seemed to be on the retail sales report, however, and the day’s other data was a non-event. At the same time, Best Buy (NYSE:BBY) is up on better-than-expected earnings. Crude oil has added $1.95 to $99.25 barrel and gold gained $9 to $1,524.60 an ounce. The Dow Jones Industrial Average is up 151 points and the tech-heavy Nasdaq rallied 42.5 points. CBOE Volatility Index (VIX) lost 1.47 to 18.17. Trading in the options market is on the light side, with 6.1 million calls and 5.4 million puts traded so far.

Bullish Flow
JC Penney (NYSE:JCP) jumps $5.30 to $35.41 and options on the retailer are seeing brisk trading today after the company confirmed that it has hired Ron Johnson as CEO, effective Nov. 1. Johnson is a former senior VP for retail strategy at Apple (NASDAQ:AAPL). Investors cheered the news and options volume in JCP includes 85K calls/55K puts through midday. The top trade is a 3,000-contract block of Aug. 35 calls on the $2.15 bid when the stock was 13.8 percent below the current price. It was likely tied to a block of 300K shares and part of a buy-write. Beyond that, there’s a lot of premium buying in JCP today — June 32 calls, June 34 puts and July 35 calls are the most actives. Implied volatility rose 12.5 percent to 42.5.

Cisco (NASDAQ:CSCO) loses 6 cents to $15 after being downgraded to Underperform from Outperform at RBC Capital today. In options action, Cisco July 15 call is now today’s most actively traded equity options contract: 46,500 have changed hands. Most of the action has been in smaller sizes and three-quarters have traded at the ask. The at-the-money call expires in 31 days and has 19,532 in open interest. Average price paid is 48.5 cents and the market is now 47 to 48 cents. Players are probably buying premium as a way to lock in the right to buy the stock at $15 rather than take positions in shares given the stock’s downward momentum. The stock is touching new 52-week lows of $14.92 today and is down 25.8 percent year-to-date.

Bearish Flow
FactSet Research (NYSE:FDS) loses $5.11 to $99.18 after the Norwalk, CT provider of economic and financial information posted third quarter estimates that matched Street estimates and also offered in-line guidance for the fourth quarter. Options volume, which is typically about 100 contracts through midday, is 1,225 puts and 230 calls. June 100 puts are now 72 cents ITM and are the most active. 790 traded, as some investors appear to be collecting $1.30 and $1.40 to take new positions. Open interest is 283 and the contract expires at the end of the week. FDS June 95 and 105 puts are seeing interest as well.

Implied Volatility Mover
Implied volatility is plummeting in Best Buy in the early minutes of trading Tuesday after the electronics retailer reported a 35-cent quarterly profit, which was 3 cents better than Street estimates. 15,000 calls and 4,950 puts traded in BBY during the first 10 minutes. June 32 calls, which are 4.1 percent OTM and expiring at the end of the week, are the most active; 11,060 traded. Looks like possible liquidating trades. Open interest is 22,407 (biggest position in Best Buy) and 94 percent traded on the bid — which is currently 12 cents. Meanwhile, implied volatility in BBY options is down 31.5 percent to 30.