Tuesday Options Recap

by: Frederic Ruffy


Mixed economic and earnings news has left stock market averages little changed late-Tuesday. Data released early showed an index of consumer confidence up to 59.5 in July, from 57.6 the month before and better than the 56 that was expected. However, New Home Sales fell to an annual rate of 312K in June, from 315K the month before and below expectations of 320K. The earnings news is also mixed. Broadcom (BRCM) shares rose nearly 10 percent and helped spark a rally in chip stocks after the semiconductor maker posted better-than-expected results. Baidu.com (NASDAQ:BIDU), Supervalu (NYSE:SVU), and Office Depot (NYSE:ODP) are also up on earnings news. However, 3M (NYSE:MMM) shares are off 5.2 percent and weighing down the Dow Jones Industrial Average after the company’s profit report disappointed. Eastman Kodak (EK), US Steel (NYSE:X), and Netflix (NASDAQ:NFLX) also fell on earnings. Meanwhile the financial press is focused on the stalemate in Washington and the August 2 deadline to raise the debt ceiling. It’s not clear how the uncertainty is really affecting the equity market. It seems to be raising anxiety levels somewhat, but there’s no sign of panic in the equity or options market so far. The Dow Jones Industrial Average is down 61 points, but the tech-heavy NASDAQ has added 2.5. CBOE Volatility Index (.VIX) edged up .47 to 19.82. Trading in the options market is light again today, with 6.6 million calls and 5.6 million puts traded so far.

Bullish Flow

SPDR Gold Trust (NYSEARCA:GLD) is up 17 cents to $157.51 after the yellow metal added $2.7 to $1614.9 an ounce. In GLD options action, one investor bought an Aug 167 - 175 call spread at 29 cents, 20000X. Another (or possibly the same) bought the Aug 168 - 176 call spread at 23 cents, 20000X. These positions look opening and have small deltas (.08 and .06) because the Aug 167 and 168 calls are relatively deep out-of-the-money (6 percent and 6.7 percent) and expire in 24 days. The positions are possibly being initiated to hedge the risk of negative news related to the budget impasse in Washington. Some market watchers view gold as a potential beneficiary from any economic turmoil caused by talk of a potential debt default. Indeed, GLD notched new highs of $157.8 yesterday and is up 7.8 percent month-to-date.

Staples (NASDAQ:SPLS) adds 27 cents to $16.22 and is moving higher today along with Office Depot (ODP), which rallied 11.2 percent on earnings. Options on Staples are also actively traded today. Recent trades include a multi-exchange sweep of 5,000 Aug 16 calls at 50-cent ask price. 7,718 traded (95 percent Ask) against 2,481 in open interest. Aug 16 puts and Aug 17 calls on the retailer are seeing interest as well. Implied volatility is up 9 percent to 31, even as shares extend a winning streak to 6 days and 7.2 percent. Staples is expected to release its profit results around Aug 18 (unconfirmed), possibly inside the August expiration.

Bearish Flow

Barclays Bank (NYSE:BCS) adds 11 cents to $15.10 and a 12500-contract block of Sep $11 puts is bought on the bank at 20 cents per contract. Looks opening and possibly some “disaster insurance” on the London-based company. The September $11 put on BCS is 27.1 percent out-of-the-money with a delta of -.08. Shares have not traded south of $11 since April 2009.

Implied volatility Mover

SuperValu (SVU) is up 70 cents to $9.22 after ther grocery chain reported a 35-cent per share quarterly profit, which was two pennies better than Street estimates. In SVU options action, a block of 20,000 Aug 9 puts trades on the 35-cent bid. The trade might offset a position opened Thursday when two blocks of 10,000 each traded at the 45 and 50-cent asking price. The original trades were tied to 380K shares at $9.33 and $9.35 (so, 20000 Aug 9 puts at 47.5 cents tied to 760K shares at $9.40). Meanwhile, post earnings volatility crush has implied vols in SPLS down 26.5 percent to 48.