Wednesday Options Recap

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 |  Includes: IO, SUNEQ
by: Frederic Ruffy

Sentiment

Market action is uninspired Wednesday ahead of a key EU summit tomorrow and Friday. With little domestic news to guide morning action, the focus was back on Europe and stocks slipped at the open on Wall Street after a German official cast doubt about a plan to combine an existing rescue package with a larger facility due out next year. Stock market averages responded favorably to reports Tuesday that EU officials were working on plans to increase the fire power of the rescue package. But the comments from Germany seemed to throw cold water on that idea. The tone of trading now has a wait-and-see feel heading into the summit. The Dow Jones Industrial Average is vacillating between gains and losses and is up 22 points in the final hour. The tech-heavy NASDAQ lost 10 points. CBOE Volatility Index (.VIX) is moving up 1.19 points to 29.32 ahead of the event risk. Trading in the options market remains light, with 5.8 million calls and 5.4 million puts traded across the exchanges so far.

Bullish Flow

MEMC Electronics (WFR), which saw high put volume yesterday, is seeing decidedly different options order flow today. Shares are up 7 cents to $4.2 and options volume is 9,300 calls and 910 puts. Jan 9 calls, which are 114.3 percent out-of-the-money, are the most actives. 2,950 changed hands. Jan 5, Jan 6, Jan 7.5 and April 6 calls on the stock are seeing interest as well. Implied volatility in WFR options is up 2 percent to 70. Tuesday’s put volume, of 22,000 contracts, created only 465 contracts of new open interest. It is possible that today’s flow is being driven predominantly by closing transactions as well. No news on the ticker. Shares have been drifting sideways in a range since a 52-week low of $3.92 was recorded on 11/25.

Bearish Flow

ION Geophysical Corp. (NYSE:IO) adds 14 cents to $6.84 and today's options order flow on the Houston-based seismic data acquisition instruments-maker includes a multi-exchange sweep of 3,096 Dec 6 puts for 10 cents when the market was 5 to 10 cents. 6,000 now traded against 73 contracts in open interest. Dec 6 puts on IO are 12.3 percent OTM and expiring at the end of next week. Meanwhile, implied volatility in the options on the stock is up 21 percent to 86. Bearish trading might be a play on a Dec 9 conference call scheduled to discuss the company's business outlook.

Implied volatility Mover

Quiet trading in the VIX pit so far Wednesday, with 59,000 calls and 25,000 puts traded in the product through late-morning. More than half the call volume is due to one spread trade after the Dec 30 - 35 call spread was bought on the index for $1.05, 15000X. It might be a closing trade or a position adjustment, as open interest is sufficient to cover in both contracts and Dec options on the volatility index expire two weeks from today.