Tuesday Options Recap

by: Frederic Ruffy


Stocks are trading mixed, but the underlying tone of trading remains cautious Tuesday. The day after fears of the deepening European Debt Crisis sent the Dow Jones Industrial Average skidding for a 151-point loss, stocks wavered at the open after data showed the nation’s trade balance deficit widening to $50.2 billion in May, up from $43.6 billion in April. Economists were looking for a smaller increase to $44 billion. The data did little to ease worries about problems overseas and both the Dow and the Nasdaq were in the red through mid-morning. However, trading turned mixed mid-day and stocks seemed to find some support from the latest FOMC minutes. Released at 2 Eastern time, the text showed that officials stand ready to offer more policy easing if needed. A successful auction of Italian government bonds also seemed to help ease some of the anxiety levels about the European Debt Crisis. Consequently, the Dow Jones Industrial Average was up 25 points with help from Cisco (NASDAQ:CSCO), American Express (NYSE:AXP) and Travelers (NYSE:TRV). The tech-heavy Nasdaq was down 4 points. The CBOE Volatility Index (.VIX) was up .25 to 18.64. Trading in the options market is distorted by large number of ex-dividend plays. 7.4 million calls and 5.9 million puts traded across the nine options exchanges so far.

Bullish Flow

Coinstar (NASDAQ:CSTR) hit a morning low of $54.32, but has since been rallying throughout the day and is up $2.10 to $57.50, at session highs. Increasing options volume has accompanied the latest move. 5,745 calls and 1,465 puts traded in CSTR so far. Aug 55 and 57.5 calls are the most actives. Implied volatility is up 2% to 46.5. No news on the stock today. Earnings slated for the afternoon of Jul 28.

Research In Motion (RIMM) adds 40 cents to $28.45 and RIM’s Jul 30 call is the most actively traded equity options contract early Tuesday with 7,434 traded. Some of the action includes spreads. The Jul 29 – 30 call spread traded at 24 cents, 392X on ISE. Some players might be initiating bullish trades in the Blackberry-maker in anticipation of new information at the company’s Annual Shareholder meeting today.

Bearish Flow

Mohawk Industries (NYSE:MHK), the Calhoun, GA, floor coverings company, is trading down 42 cents to $55.64 and a 6,124-contract block of MHK Aug 55 puts trades at $2.25 on ISE. It's an opening customer buyer, according to data from the exchange. 9,271 traded against 1,340 in open interest. The contract is 1.2% out-of-the-money and has a delta of -.44. The bearish trading might be hedging activity and/or a play on earnings, due early August. Shares have not performed well lately, and are on a six-day 9.6% losing skid.

Implied Volatility Mover

Trina Solar (NYSE:TSL) traded down $2.97 to $16.79 and implied volatility in TSL options was up amid increased put volume. 25,000 puts and 12,000 calls traded in the Changzhou, based solar energy company. Jul 17 puts, which are now 21 cents in-the-money, are the most actives. 6,227 traded against 820 in open interest. July and Aug. 18 puts are seeing heavy trading as well. Aug 18 is the most active call option. Meanwhile, implied volatility in TSL options surged 80% to 96 after the company announced that an independent director and chairman of the audit committee has resigned from the board and the audit committee.

Unusual Volume Movers

Bullish flow detected in Newell Rubbermaid (NYSE:NWL), with 2,071 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Guess (NYSE:GES), with 11,015 calls trading, or 7x the recent average daily call volume in the name.

Bullish flow detected in Barclays Bank (NYSE:BCS), with 4,937 calls trading, or 2x the recent average daily call volume in the name.

Increasing volume is also being seen in ON Semiconductor (ONNN), Qualcomm (NASDAQ:QCOM) and Delta Airlines (NYSE:DAL).