Tuesday Options Recap

Includes: ANRZQ, DF, FMCN, MDR
by: Frederic Ruffy


Stock market averages have seesawed back and forth, but are little changed through midday Tuesday. With no economic data or earnings of broad market significance to guide the action, the focus was back on Europe and Berlusconi’s plight as Prime Minister of deeply indebted Italy. While he successfully won a parliamentary vote related to the country’s financing, Berlusconi failed to secure enough votes to win the Chamber – which put in jeopardy his position as Italy’s Prime Minster. Stock market averages, which followed European benchmarks higher at the opening bell, faltered when the results on the vote made the rounds. However, the decline was orderly and the Dow Jones Industrial Average has now moved back to positive territory on reports Berlusconi will resign once the budget legislation is approved. With less than two hours remaining to trade, the industrial average is up 31 points. The tech-heavy NASDAQ added 14.6. CBOE Volatility Index (.VIX) hit a morning high of 30.49, but is now down 1.15 points to 28.70. Overall order flow in the options market remains light, but a bit better than Monday. 5.2 million calls and 5.5 million puts traded so far.

Bullish Flow

Pre-earnings action in McDermott (NYSE:MDR) includes 13,000 calls and 661 puts. Shares are up 36 cents to $12 and Dec 16 calls are the most actives. 4,726 traded (68 percent Bid). Nov 13 calls traded 3223 contracts (86 percent Ask). Dec 14 and 15 calls are seeing interest and trading predominantly at the ask as well. Implied volatility is up 13 percent to 79 ahead of a profit report, due out after the closing bell.

Pre-earnings action in Dean Foods (NYSE:DF) includes two 1470-lots of Dec $11 calls for 50 and 55 cents when the market was 40 to 55 cents. Looks tied to 102K shares at $10.42. 3,674 now traded against 641 in open interest. Upside call activity comes ahead of earnings, due out tomorrow morning.

Bearish Flow

Alpha Natural Resources (ANR) is up 91 cents to $28.65 and has rallied almost 20 percent since earnings were reported last Thursday. Recent options trades on the coal producer include a Nov 23 – Dec 24 put spread, bought for 94 cents, 10000X. Looks like a roll and possibly closing out a position opened Thursday, when the stock was up on earnings and ANR options saw a flurry of activity — including 7500 Nov 23 puts bought for 70 cents and tied to stock at $26.36. Today’s spread probably rolls the position out one month and up one strike following the move higher in the underlying since Thursday.

Implied volatility Mover

Relative weakness and higher put volume in Focus Media (NASDAQ:FMCN). Shares are off $1.28 to $25.34 and 28,000 puts traded on the Chinese media company, which is more than 7X the day's call volume and about 16X the expected through midday. The top trade is a 500-lot of Nov 18 puts traded for 75 cents when the market was 65 to 80 cents. 5,074 Nov 18 puts now traded. The contact is 29 percent OTM and expires in 10 days. Nov 20, 21 and 22 puts, as well as the Dec 18 puts, on FMCN are seeing interest as well. Implied volatility in the options on the stock is up 15 percent to 98 and the high volume in short-term downside puts in FMCN seems to reflect some concern about the short-term outlook for the underlying stock. No news on Focus Media yet today. Earnings were last reported on 8/22 and expected again around 11/21, possibly outside the Nov expiration.