Monday Options Recap

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 |  Includes: AA, CELG, HRBN, S
by: Frederic Ruffy

Sentiment

Stocks are higher on Columbus Day. The table was set for early gains on Wall Street after leaders from France and Germany reached agreement about bank bailout plans over the weekend. Germany’s DAX led an advance across the Eurozone with a 3 percent rally and the euro rallied more than 2 percent against the buck. Hopes for the global economy helped send crude oil prices up $2.39 to $85.37 per barrel and gold gained $39.7 to $1,675.50 an ounce. Meanwhile, with fifteen minutes left to trade, the Dow Jones Industrial Average has added 271 points and the tech-heavy NASDAQ gained 68.5. CBOE Volatility Index (.VIX) lost 2.04 to 34.16. Trading in the options market is light, with 6.8 million calls and 6.8 million puts traded so far.

Bullish Flow

Alcoa (NYSE:AA) unofficially kicks off the third quarter earnings reporting season tomorrow and there's not much in the recent options order flow that suggests players are bracing for a big move in the aluminum maker. 34,000 calls and 17,000 puts traded on the stock so far. Shares are up 26 cents to $9.96 and Weekly (10/14) $10 calls are the most actives. 5900 traded. October 10, 11 and 12 calls are seeing interest as well. The Weekly 10 and 9 are the most active put options in Alcoa today. The flow looks like the typical pre-earnings action, with a modest amount of optimism being reflected in the heighted call activity and the 2 percent decline in implied vols (61). The stock has performed well in recent days and is up 17.9 percent from the 52-week lows set a week ago.

Celgene (NASDAQ:CELG) adds $3.34 to $66.29 after RBC upgraded the stock to Outperform from Sector Perform. The firm cites product pipeline, earnings growth, and valuations for the upgrade. Shares are rallying and options volume in the biotech is 6,260 calls/180 puts. Most of the action has been in smaller sizes. The top trade is a 287-lot of Oct 65 calls on the 94-cent bid. Oct 67.5 calls, which are 1.8 percent OTM and expire in 11 days, are the most actives. 2,657 traded (51 percent Ask). Nov 67.5, Oct 70, and Nov 65 calls are seeing interest as well. Implied volatility is up 3 percent, but at relatively low levels of only 33 percent. The stock has performed well lately, up 27.9 percent over the past two months and touching new 52-week highs near $67 today.

Bearish Flow

Sprint (NYSE:S) is one of only five losing stocks in the SP500 and option volume is triple normal pace with nearly 100K contracts trading and calls leading puts nearly 4:1. May 3.5 calls lead the most actives, with 10K trading and an average price of 27.8cents. ISE data confirms this flow is opening customer seller intiated and with shares near 2.21 and an S&P ratings watch, it may reflect a view that Sprint will have a tough time regaining $6 highs seen this past summer.

Implied volatility Mover

Harbin Electric (NASDAQ:HRBN) is down and implied volatility in its options is up, as some investors might be skeptical about the company’s ability to complete the $24 per share in cash LBO. The SEC approved the buyout in late-September. Shares are down $1.17 to $20 and today’s options volume in the Chinese electrical equipment company is 11K calls/24K puts. The top trade is a Nov 10 – 18 put spread, apparently bought at $2.10, 3000X. Dec 24 calls, Oct 10 puts, and Weekly 13 puts are the next most actives, Implied volatility is up 31 percent and elevated at 140 — certainly not consistent with a “done deal” relative to the LBO.