Tuesday Options Recap

Includes: FRX, GMCR, SFL
by: Frederic Ruffy


Stock market averages are lower on disappointing economic and earnings news Tuesday. Data released before the bell showed third quarter GDP growing at a 2 percent annual rate, which was .5 percent less than expected. Meanwhile, H-P shares are down 2.4 percent and among the Dow’s biggest losers after the computer-maker posted better-than-expected results for the third quarter, but guided estimates lower for the fourth. Concerns about the EU debt crisis following a poor auction of Spanish bonds and worry about the Super Failure on budget talks in Washington over the weekend are adding to investor anxiety levels as well. However, the decline today has been orderly and trading appears to be slowing ahead of the holiday. The Dow Jones Industrial Average is down 58 points and the tech-heavy NASDAQ lost 2.7. CBOE Volatility Index (.VIX) is off 1.15 to 21.76. Volume is light, with 5.7 million calls and 5.3 million puts traded so far.

Bullish Flow

After falling to a new 52-week low of $29.01 yesterday, Forest Labs (NYSE:FRX) shares saw a morning spike and are trading up 22 cents to $29.23 today. The top options trade in the pharmaceutical maker is a 2200-lot of Dec 30 calls for 65 cents per contract on ISE, which was bought-to-open for a customer account, according to data from the exchange. 4580 Dec 30 calls traded on the stock. Jan 30 and Jan 31 calls on FRX are seeing interest as well. Meanwhile, implied volatility in options on stock is up 7.5 percent to 30. Today's call buying might represent bottom fishing after a 25.7 percent drop in the underlying since June

Bearish Flow

Heavy trading in Ship Finance (NYSE:SFL), which is trading lower in sympathy with Frontline today. FRO fell more than 40 percent after posting a net loss for the third quarter and warning that it was burning though its cash. SFL, which is due to relese earnings tomorrow morning, is down $2.77 to $11.04 and falling to new 52-week lows. 6,800 puts and 1,420 calls traded on the stock. Typical volume is about 220 contracts. May 10, May 7.5, Dec 10, Jan 10, and Feb 10 puts are the most actives and implied vols in the options on the stock surged 120 percent and are now elevated at 109.

Implied volatility Mover

Green Mountain Coffee Roasters (NASDAQ:GMCR) implied volatility is elevated, as shares give up early gains and trade lower Tuesday. After bucking the bearish trend Monday and gaining 4.9 percent, the stock opened higher and added another 3 percent in early trading Tuesday. The gains didn’t last, however, and GMCR is down $4.01 to $48.90 and 10.3 percent off session highs. The stock is now down 27 percent since earnings were reported on 11/9. The volatility has stirred up some action in GMCR options, with 13K calls and 27K puts traded on the stock so far today. The top trade is a 950-lot of Weekly $40 puts at 19 cents. Another 500 traded at 19 cents and sentiment data indicate a customer sold-to-open the position, 1500X. Weekly 45 puts are the most actives, with 3,376 traded. Weekly $50 puts are the third most actives, followed by Jan 29 and Jan 50 puts. Meanwhile, implied volatility in the options on the stock is up 12 percent and elevated at 90.