Monday Options Recap

Includes: AA, AAL, BAC, FDX, SGMO
by: Frederic Ruffy


Stock market averages are lower, as domestic news continues to take a backseat to events across the Eurozone. Data released thirty minutes into the trading session showed the ISM Index of manufacturing activity up to 51.6 in September, from 50.5 the month before and better than the 50.6 that economists had predicted. Meanwhile, Construction Spending was up 1.4 percent in August. Economists were expecting to see a decline of .5 percent. While stock market averages held steady on the data in early trading, another barrage of selling hit the Street through midday. Big losses in the euro, which is at 10 year lows on the yen and eight-month lows against the dollar, is weighing on sentiment. Stock market averages also suffered sharp losses across the Eurozone. Crude oil is down $1.83 to $77.28 on recession fears and analyst talk of a potential bankruptcy sent AMR shares down to $1.75 per share. Alcoa (NYSE:AA) is the biggest loser in the Dow after JP Morgan cut its price target on AA – citing a lowered outlook for fourth quarter metals prices. The industrial average is now down 195 points. The tech-heavy NASDAQ tumbled 64 points. With forty minutes left to trade, CBOE Volatility Index (.VIX) is up 1.32 to 44.28. Trading in the options market is active and reflects the bearish underlying tone. 8 million calls and 9.8 million puts traded across the exchanges so far.

Bullish Flow

Sangamo Biosciences (NASDAQ:SGMO) loses $1.06 to $3.29 after the company halted the development of SB-509 – a diabetic neuropathy treatment — after the drug failed to meet goals in a Phase 2b study. Shares are reeling on the news and options volume is running 3X the daily average, with 3,800 calls and 660 puts traded on the stock so far. The top trade is a 215-lot of Nov 6 calls at the 15-cent ask price. Nov 3 calls are the most actives. 1,097 traded. Directional sentiment based on the overall flow is 72 percent Bullish and implied volatility is down 7.5 percent to 122.5, as some investors seem to view the recent sell-off in SGMO as an opportunity for bullish trades. The stock is down 44.7 percent since 9/16, when shares closed at $6.

Bearish Flow

BofA (NYSE:BAC) loses 8 cents to $6.04 through midday and is probing its 52-week low of $6 set intraday on 9/22. Recent options trades on the bank include a buyer of 62,000 Oct 4 puts at 8 cents per contract. The same investor bought 29,000 Oct 5 puts at 17 cents. The $4 puts, which are 33.8 percent OTM with a -.08 delta, look opening. Oct 5s might be closing. Either way, the big prints in BofA seem to reflect skepticism that recent support can hold through the Oct expiration, which is in 18 days.

FedEx (NYSE:FDX) loses 88 cents to $66.80 early Monday and an Oct 60 – 65 put spread is bought on the stock at $1.36, 3000X. Bearish spread on FDX comes after a rough stretch for shareholders. FDX is down 32.1 percent from the 52-week highs seen in early-July and 7.6 percent since earnings were reported on 9/22.

Implied volatility Mover

49,000 calls and 50,000 puts traded in AMR today. Shares are down 81 cents to $2.15 on recession fears and concerns the parent of American Airlines will “burn through its cash reserves” Bloomberg. The company issued an email statement saying bankruptcy was “not our goal or are preference”. The third largest airline by air traffic volume was the only major carrier that didn’t restructure under Chapter 11 during the previous downturn and is now seen as the financially weakest. Shares hit a low of $1.75 today and were also temporarily halted. Meanwhile, Oct and Nov 2 puts are the most actives in AMR. Nov 3 calls are seeing interest as well. Meanwhile, implied volatility in AMR options jumped about 90 points towards 200 on the day.