Wednesday Options Recap

Includes: BAC, GIS, GMXRQ, HPQ
by: Frederic Ruffy


Stocks traded mixed through midday and then faltered late-Wednesday after the Federal Reserve unveiled its widely-expected Operation Twist strategy. The plan is to sell $400 billion of short-term debt to buy an equal amount of longer-term Treasurys. The program, which is designed to keep pressure on long-term interest rates, was widely expected and the reaction seems to be “buy the rumor, sell the news”. The other economic news included a better-than-expected reading on Existing Home Sales, which improved to an annual rate of 5.03 million in August and up from 4.67 million the month before and better than the 4.7 million that was expected. Meanwhile, tech stocks were stronger early on better-than-expected earnings from Oracle and Adobe. Hewlett Packard is a bright spot in the Dow on reports the Board is pushing for the ouster of the computer maker’s CEO. However, BofA (NYSE:BAC) is under pressure in active trading on Moody’s downgrade. Heading into the final bell, the Dow Jones Industrial Average is down 250 points. The tech-heavy NASDAQ lost 37.5.

Bullish Flow

Hewlett Packard (NYSE:HPQ) is up $2.42 to $24.89 midday and the Dow’s best gainer today on reports the company’s Board is contemplating the ouster of bumbling CEO Leo Apotheker. 125,000 calls and 70,000 puts traded on the computer maker, which is about 5X the typical volume for midday trading. October 23 puts and 25 calls are the most actives. More than 25,000 traded in both, including an Oct 23 – 25 strangle 3000X at $1.16 when the market was $1.12 to $1.16. Looks opening and was market “tied”. October 24, 26 and 27 calls on HPQ are seeing brisk trading as well. Oct 20 and 24s are busy on the put side of the options chain. Meanwhile, implied volatility in H-P options jumped 22.5 percent to 52, compared to a 52-week high and low of 19 (5/27) and 67 (8/9).

Bearish Flow

General Mills (NYSE:GIS) adds $1.36 to $38.85 after the company reported first quarter earnings that beat Street estimates and reaffirmed guidance for the full year. Noteworthy options trades in the food company today include a 13,000-contract block of Apr 42 calls at 88 cents on ISE. Sentiment data indicate a customer sold-to-open a new position. 13,350 now traded. Apr 42 calls on General Mills are 8.3 percent OTM with a delta of .28 and 84 contracts of open interest. The stock has a 52-week high of $40 even set intraday on 5/20. Meanwhile, implied volatility in GIS options is down 11.5 percent to 19.5.

Implied volatility Mover

GMX Resources (GMXR) sees a spike to $2.53 and was recently up 21 cents to $2.42 on no company specific news. Options volume in the Oklahoma City oil and gas driller is 5X the daily average and concentrated in Nov 2 calls. 4,679 traded against 169 in open interest. The action includes a multi-exchange sweep of 1,351 at 70 cents when the market was 55 to 70 cents. Another sweep of 1,129 traded at 55 cents when the bid-ask was 40 to 55 cents. Looks like in-the-money call buying and implied volatility is up 17 percent to 116.5. The market on the GMXR Nov 2 call is now 60 to 75 cents. Prior to today, shares had been hammered for 54.4 percent loss since July.