Tuesday Options Recap

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 |  Includes: BBRY, KBH, KMX, MS
by: Frederic Ruffy

Sentiment

Stocks rallied around hopes for the Eurozone and the global economy Tuesday. A successful auction of Spanish debt helped ease some recent anxiety about the European Debt Crisis and surprisingly strong German confidence data helped send Germany’s DAX up 3.1 percent. The euro edged .7 percent higher on the buck. Crude oil bubbled more than $3 higher and gold gained $20 an ounce. Meanwhile, the domestic economic news included surprisingly strong New Home Sales for November (see today’s Bullish Flow). Overall, the early news flow was supportive of higher stock prices, as it seemed to ease worries about the risks of a double-dip, and early gains on Wall Street were extended through midday. Heading into the final hour, the Dow Jones Industrial Average is up 325 points. The NASDAQ gained 77. CBOE Volatility Index (.VIX) is down 1.89 points to 23.03 and its lowest levels since August. Overall options volume is running about the typical levels, with 6.8 million calls and 4.9 million puts traded across the exchanges so far.

Bullish Flow

KB Homes (NYSE:KBH) adds 47 cents to $7.50 and a 21,580-contract block of Jan 7.5 puts trades on the homebuilder at 48 cents when the market was 48 to 50 cents. It might be an opening put seller after data this morning showed New Home Sales improving to an 685K in November, which was up from 627K in October and also much better than the 627K that was expected. Building permits rose to 681K (vs. 644K consensus).

Morgan Stanley (NYSE:MS) adds 68 cents to $14.84 and recent options trades on the investment bank include a Jan 17.5 - Feb 17 call spread, bought for 45 cents, 10000X. It appears to be rolling activity, and possibly closing out Jan upside calls that expire in 31 days to buy Feb calls that expire in 59. The Jan 17.5s have 52,158 in open interest and are the second largest on the stock behind Jan 12.5 puts.

Bearish Flow

Even amid a monster rally on Wall Street, Research In Motion (RIMM) can’t get off the schneid Tuesday. Shares touched new 52-week lows and are down 31 cents to $12.58. Meanwhile, the top options trade on the Blackberry-maker is a 5000-lot of Feb $12 puts bought for $1.06 on AMEX. 33,000 now traded against 18,582 in open interest, as some players in the options market seem to expect the stock to now break below $12 in early-2012.

Implied volatility Mover

Implied volatility in Carmax (NYSE:KMX) options is edging higher ahead of earnings. 6850 puts and 777 calls traded on the stock so far. Shares are up 75 cents to $30.89 and the bulk of the options activity is focused on Jan 29 puts. The top trade is a 2148-lot opened at 90 cents per contract when the market was 85 to 95 cents. 5,430 Jan 29 puts now traded on the stock and implied volatility in options on KMX is up 9 percent to 44 ahead of the results, due out tomorrow morning before the opening bell. The stock gapped lower and lost 11 percent on 9/22 after earnings were last reported. Shares have since recovered all of those losses, and (13%) more, since that time.