Wednesday Options Recap

by: Frederic Ruffy


Stock market averages are trading mixed following a heavy dose of earnings news Wednesday. Apple Computer (NASDAQ:AAPL) is trading up 3.4 percent to $389.50 per share after the company reported earnings that easily topped Street estimates. St. Jude Medical (NYSE:STJ), Textron (NYSE:TXT), and VMWare (NYSE:VMW) are also up on earnings. However, United Technologies (NYSE:UTX) is seeing a 1.9 percent post-earnings decline and is the biggest loser in the Dow Jones Industrial Average today. Poor Existing Home Sales numbers also weighed on early trading. The data showed total sales at an annual rate of 4.77 million in June, which was down from 4.81 million and also below economist forecasts of 4.9 million. However, the impact from the data was short-lived and trading had turned mixed through midday. With a little over an hour left to trade, the Dow is up 10 points, but the tech-heavy NASDAQ lost 5.6. CBOE Volatility Index (.VIX) slipped .39 to 18.82. Trading in the options market is running about the typical levels, with 6.9 million calls and 5 million puts traded across the nine exchanges so far.

Bullish Flow

The top options trade so far today is in Microsoft (NASDAQ:MSFT), which is trading down 49 cents to $27.07. One player bought 57000 Jan13 $30 calls at $1.71 per contract. The position is tied to 2.26 million shares at $27.30 and might close a position. Open interest is 218,129 and saw a 26K increase this morning after a Jan13 22.5 – 30 risk-reversal was initiated, 26000X, in MSFT yesterday. The interest in long-dated options on Microsoft comes ahead of earnings, tomorrow (after market).

Oncothyreon (ONTY) touches a new 52-week high and is up $1.45 to $10.29 after Seeking Alpha published a favorable article related to the company's drug for Stage 3 lung cancer, Stimuvax. The author sees a 90 percent + probability of success. Options action in Oncothyreon is heating up as well, with 30,000 calls and 2,620 puts traded in the Seattle, WA biotech. The top trades are part of a spread, in which the investor sold 2,700 Aug 10 calls at $1 and bought 4,615 Feb 15 calls at $2.70. This diagonal spread might be a bet that shares will hold around $10 over the next four weeks and two days, and then rally through the Feb expiration. Separately, an investor paid an average of 2.625 cents per contract for 5000 Feb 15 calls. Feb 14 calls were also bought at 2.625 cents, 5000X today. Aug 9, Aug 11 and Nov 15 call options on ONTY are seeing interest as well. 2,000 Jan 17 calls traded at $1.90 (customer-to-customer), as I was writing this note. Meanwhile, implied volatility in ONTY options is rallying 35 percent to 99.

Bearish Flow

US Bancorp (NYSE:USB) adds 94 cents to $25.97 after reporting a 60-cent per share quarterly profit, which was 6 cents better than Street estimates. Recent options trades in the bank include a multi-exchange sweep of Aug 26 puts at the 66-cent asking price. The market was 59 to 66 cents. Looks like put buying as the stock moves higher. 2,597 now traded (100 percent Ask) against 973 in open interest.

Implied volatility Mover

Options on Etrade Financial (NASDAQ:ETFC) are actively traded for a second day. Oct 17 calls on the online broker were busy yesterday. Open interest in the contract increased by 5,779 to 9,120 and is now the largest position in the name. The call buying was well-timed, as shares are up $2 to $14.95 today after Citadel disclosed a 9.8 percent stake in Etrade and urged the company to call a special meeting to maximize shareholder value. 13,000 calls and 2,680 puts traded in ETFC options today. Typical volume through first hour is 830 contracts. October 15 calls, which are now at-the-money, are the most actives. 5,500 traded and the volume appears to include a mix of buying and selling. Aug and Sep 15 calls are busy as well. Meanwhile, implied volatility in Etrade options is up 7 percent to 44.5 ahead of earnings, due out after the closing bell.