Wednesday Options Recap

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 |  Includes: CREE, KEY, MRVL, WDC
by: Frederic Ruffy

Sentiment

Volatility continues, with sharp losses across the Atlantic weighing on Wall Street Wednesday. France’s CAC 40 Index tumbled 5.5 percent on unconfirmed talk of troubles at some French banks. Societe Generale spokespeople are out with comments today downplaying the speculation, but since investor anxiety levels are already elevated, the talk triggered a volatile reaction across the Eurozone. Germany’s DAX and Spain’s IBEX also lost more than 5 percent. Volatility spilled onto US shores when the opening bell rang at the NYSE and despite a midday rally attempt, stock market averages are deep in the red. The Dow Jones Industrial Average has given back 324 of yesterday’s 430-point rally. The tech-heavy NASDAQ lost 52. CBOE Volatility Index (.VIX) is up 4.74 to 39.80. Options volume is a bit lighter than in recent days, but remains very heavy. Approximately 9.4 million calls and 10.4 million puts traded so far.

Bullish Flow

CREE is a bright spot today after the LED maker posted slightly better fourth quarter earnings and revenues. Shares rallied $4.21 to $33.70 and are now up 26.7 percent from the 52-week low seen just two days ago. The top options trade in CREE today is a 2946-contract block at $1.77. It was part of a larger sale of 5,000 contracts. Beyond that, most of the activity has been in smaller lots. Aug 35, Aug 37.5 and Jan13 42.5 calls are seeing interest as well.

Sandisk (SNDK) loses $1.05 to $36.88 and one investor sold the Sep 37 – 41 put spread on the chipmaker at $2.30. 5000X. 5,000 more were sold at $2.35. Volume in both contracts is more than 20,000 and this is likely closing activity. Open interest is also more than 20,000 in both the Sep 37 and 41 puts, which are the two largest OI positions in SNDK. 15,000 were opened on 8/1 when the same spread was bought at $1.34, 10000X and at $1.25, 5000X. The spreads, which are now in-the-money, are being closed out after a 12.2 percent decline in the share price.

Bearish Flow

Implied volatility in Key Bank (NYSE:KEY) is up amid increasing put activity today. Shares are falling to 52-week lows and were recently down 56 cents to $6.36. Sep 8 puts, which are now 20.5 percent in-the-money, are the most actives. 4,092 traded and, while 95 percent traded at the ask, it looks like closing trades are driving some of that volume. Dec 6, Dec 7, Sep 6 puts are seeing interest, mostly at the offer as well. Consequently, implied volatility in options on the Denver-based regional bank is up 31.5 to 71.5. Shares have tumbled 21.5 percent during the past two weeks and the volatility seems to have stirred up some put buying in KEY today. Earnings were reported on 7/19.

Implied volatility Mover

Bullish flow detected in Marvell Technology (NASDAQ:MRVL), with almost 40,000 calls trading, or 3x the recent avg daily call volume in the name. The chipmaker's shares are down 30 cents to $11.68 and closing buyers are probably driving a lot of the volume. For example, the Aug 16 calls, which are now 37 percent out-of-the-money and have open interest of 39,664 contracts, are the most actives. 17.676 traded (65 percent Ask). Aug 14, Aug 15, and Nov 16 calls are busy as well. No news on the stock today. Shares are down 22.6 percent over the past two weeks and heading into an Aug 18 (after market) earnings release, which is the Thursday before the expiration. Implied volatility is moving up 19 percent to 80 ahead of the results.