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Sentiment


Stocks are broadly lower on disappointing economic data and worries about the ongoing European Debt Crisis. The euro was slammed for a 1.8 percent loss against the buck after protestors clashed with police in Athens. The violence is raising concerns that the debt problems in Greece are going to escalate out of control. Meanwhile, the domestic economic news included another round of disappointing data. The NY Empire State Index fell to -7.8 last month, from 11.9 in April. Oops. Economists were expecting an increase to 14. The Consumer Price Index [CPI] increased by .2 percent, compared to expectations for no change, and Industrial Production rose .1 percent, half as much as expected. The latest NAHB Housing Index was also well below estimates (of 16). The index fell 3 points to 13 and to levels last seen in September. The combination of bearish headlines from Europe and disappointing domestic economic news has conspired to send the Dow Jones Industrial Average down 172 points. The tech-heavy NASDAQ lost 47. CBOE Volatility Index (.VIX) gained 3.19 to 21.45. Options volume is very active due to the volatility and ahead of the quarterly options expiration. 8.4 million calls and 9.9 million puts traded so far.


Bullish Flow

Cisco (CSCO) July 15 calls are again among the most actively traded options. Open interest increased by 52,600 to 72,132 contracts after yesterday's action (see 6/14). Today, shares are again touching new 52-week lows and down 28 cents to $14.80. In options trading, one investor sold 28,000 July 15 calls at 43 cents. The trade was tied to 1.58 million shares at $14.88 and might close a position opened yesterday, as it seemed that buyers were driving the flow Tuesday. Another 47,670 July 15 calls have now changed hands. June 15 puts and calls in CSCO are seeing interest as well.

Bearish Flow

Research In Motion (RIMM) is falling to new 52-week lows and is down 61 cents to $35.15 ahead of earnings, due tomorrow afternoon. Meanwhile, 107,000 calls and 112,000 puts traded on the Blackberry maker. The top trade is a spread, in which the investor sold 22,000 Jan 40 puts at $7.85 to buy 30,000 January 35 puts at $4.90. The ratio spread probably rolls a position from the in-the-money 40s to the at-the-money 35s. A shareholder might be adjusting a hedge ahead of the results. Meanwhile, other investors are focused on the front-month puts and calls ahead of the news. Jun 32.5 puts and Jul 37.5 calls are the most actives.

AT&T (T) loses a dime to $30.69 and one investor sells Jun 30 calls at 70 cents and collects 98 cents on the Aug 26 – 30 bearish risk-reversal, 27500X. $1.68 is collected on the three-way and likely closes out one leg of a Jun 26 – 30 combo that was accumulated over time (including 4/7, 4/11, 4/13 — no color). Some of the initial trades were tied to stock. Separately, an Aug 31 – 33 (1X2) call ratio spread recently traded in AT&T at 36 cents, 3500X. Total options volume in the phone company is now 95K contracts and 3.5X the average daily volume.

Implied volatility Mover

CBOE Volatility Index (.VIX) gains 2.24 to 20.50 and is making a run to session highs midday. The fear gauge is rallying to its best levels since 3/23, as the S&P 500 falls 17 points and is now off 5.5 percent in June. SPX is dipping below its June closing low of 1270.98 set Friday. Meanwhile, VIX options are heavily traded today. 226,000 calls and 37,000 puts so far. Attention is turning to July and August calls now that the June contract has expired. Jul 25s have traded 65,930X contracts and are the most actives. July 21, Aug 20 and Aug 27.5 calls are busy as well. The official settlement for the June contract is 19.73.

Source: Wednesday Options Recap