Tuesday Options Recap

Includes: AAPL, S, SIRI, WFC
by: Frederic Ruffy


Stock market averages are under water again late-Tuesday. The table was set for another round of selling on Wall Street after European stock benchmarks fell on ongoing worries about Greek debt and potential problems in the banking world. The only domestic economic stat of the day showed Factory Orders down .2 percent and .1 percent more than expected. Falling commodities prices are also fueling recession fears. Gold lost $56 and is testing $1600 an ounce. Crude oil slipped $2.11 to $75.50 per barrel. The Dow Jones Industrial Average is down 174 points. The tech-heavy NASDAQ gave up midday gains and is down 25 points. With less than an hour to trade, CBOE Volatility Index (.VIX) is down 1.08 to 44.37. Trading in the options market is active, with 10 million puts and 11.5 million calls traded across the exchanges so far.

Bullish Flow

Apple Computer (NASDAQ:AAPL) is down and options on the stock are actively traded today after the company updated its product line-up. Apple unveiled an iPhone 4s rather than a widely-expected iPhone 5. Beginning on Oct 14, a 16GB version will be available for $199, 32 for $299 and 64 for $399. The company also said iPhone 4 will see a price drop to $99 and a 3S model will be available free at contract sign up. Shares fell to $354.24 after the event ended and are down $12.11 to $362.49. Options volume in Apple is 587K calls and 360K puts. The top trades are part of a four-way, in which the strategist bought Oct 405 - 410 call spreads at $1 and sold the October 415 - 420 call spread at 60 cents, 8500X. The call condor, for a 40-cent debit, has traded multiple times today and seems to be targeting a move back to between $410 and $415 through the October expiration (17 days). Meanwhile, implied volatility in Apple options is up 6 percent to 56 and new 52-week highs today.

Sirius XM Radio (NASDAQ:SIRI) loses two pennies to $1.43 and a 15000-contract block of Dec 1.5 puts is sold-to-close on the stock at 26 cents per contract on ISE. Dec 1.5 puts on SIRI are 4.7 percent in-the-money with 38,860 in open interest and 73 days of life remaining. 15,530 now traded, as some investors might be exiting positions on the view the recent decline in shares has run its course. Jan 1 and Oct 1.5 puts on SIRI are seeing interest as well. Overall volume is heavy in Sirius options today, with 28,000 calls and 34,000 contracts on the tape so far. Implied volatility is up 6.5 percent to 86 following a wide swing in the share price today. SIRI hit a 52-week low of $1.27 early, before rebouding to a high of $1.52 mid-morning. The company announced today that Subaru will offer SiriusXM on all vehicles beginning with 2012s.

Bearish Flow

Wells Fargo (NYSE:WFC) loses 17 cents to $23.01 and options volume is running 2.5X the daily average, with 181,000 puts and 24,000 calls traded on the bank so far. The top trade is a Jan 12.5 – 22.5 put spread bought at $2.31, 20000X. The next biggest trade is a buyer of 13,700 Oct 18 puts at 47 cents. The next largest trade is a Jan 12.5 – 20 put spread, apparently bought at $1.51, 8640X. A block of 6,872 Oct 19 puts traded at 61 cents when the market was 60 to 63 cents. A Jan 12.5 – 20 put spread traded again at $1.50, 5000X, and $1.51, 3360X. The top 18 trades in WFC today are puts. By way of comparison, the largest trade on the call side of the options chain is a 331-lot of Jan 27s at $1.18. Implied volatility in options on the stock is up 3 percent to 73, as players seem to be bracing for further losses in shares of the bank.

Implied volatility Mover

Sprint Nextel (NYSE:S) implied volatility is up amid heavy trading in the options on the phone company. Shares touched new 52-week lows of $2.25 this morning, but were recently down just a penny to $2.71. Meanwhile, 92,000 calls and 29,000 puts traded on Sprint so far. The top trade is a 10,000-contract block of Jan 4 puts sold at $1.60. It was tied to 740K shares at $2.59 and possibly a closing trade. Jan 2.5 calls are the most actives, with 22,216 traded and 85 percent trading at the ask. The flow includes some Jan 2.5 – 4 call spreads, which seems to be bullish trading on the stock. Nov 3 and 3.5 calls are seeing interest as well. Meanwhile, implied volatility in the options on the stock is rallying 31 percent to 122 and beyond the 52 week highs set yesterday. Bullish trading is possibly a play on Apple’s event today, which is expected to include one or more new iPhones. A report released yesterday indicated that Sprint is investing $20 billion in a long-term contract to gain access to the popular product.

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