Tuesday Options Recap

by: Frederic Ruffy


Stock market averages opened higher and are holding gains with help from earnings and Chinese import data Tuesday. Stock index futures ticked higher Monday evening after a report showed Chinese imports increasing more than expected last month. Meanwhile, Alcoa (NYSE:AA) kicked off the fourth quarter earnings reporting season and, while the headline EPS numbers wasn’t impressive, revenues topped expectations and the company also raised its outlook for the industry. The metals are rallying. Gold is up $26 to $1634 an ounce, silver gained $1.17 to $29.96, and copper added 10 cents to $3.52. On the economic front, the only economic stat of the day was Wholesale Inventories, which rose .1 percent in November and .5 percent less than-expected. Beyond that, there isn’t much news to guide the market. Homebuilder Lennar and grocery store Supervalu report tomorrow morning, but the earnings reporting period doesn’t get into full swing until next week. Thursday’s report on Retail Sales has market moving potential. However, the underlying tone continues to reflect cautious optimism amid low levels of market volatility in early-2012. With less than an hour remaining to trade Tuesday, the Dow Jones Industrial Average is up 73 points. The tech-heavy NASDAQ gained 28. CBOE Volatility Index (.VIX) is off .52 to 20.55. Trading in the options market is active today. 9.3 million calls and 5.8 million puts so far.

Bullish Flow

Active trading continues in Southwest Energy (NYSE:SWN). Shares are relatively weak today, down 58 cents to $32.50, after natural gas prices lost another 7 cents to $2.94. On Friday, the company's CEO warned that budget cuts were in the offing if natural gas prices remained depressed. Yet, while shares are underperforming, options order flow in the Houston, TX oil and gas company remains bullish, with 40,000 calls and 7,350 puts traded on the stock so far. The top trade is a Feb - Mar 34 call spread, bought for 55 cents, 2000X, and probably rolls a bullish position out an additional month. Feb 34 calls on SWN were being bought this morning and last week. Open interest in the contract is now 28,883 and the largest open position in the name. 15,780 more traded today. 9,770 Mar 34 calls on SWN against 1,070 in open interest.

Cirrus Logic (NASDAQ:CRUS) surges $2.03 to $19 per share on upbeat earnings guidance and options volume is running 9X the daily average, with 13,000 calls and 3,030 puts traded on the integrated circuit-maker. Most of the action has been in smaller lots. The top trade is a Jan 17.5 – Feb 21 call spread at $1.35, 490X on ISE. Data suggest rolling of a bullish position out one month and up strikes, 1230X total. Jan 19, Jan 20 and Feb 30 calls on CRUS are seeing interest as well. Jun 15s and 16s are the most active puts. Implied volatility is up 6 percent to 51.5. The actual earnings report is expected later this month.

Bearish Flow

Options volume surged and implied volatility in Goodyear Tire (NYSE:GT) is higher after the company warned at a Deutsche Bank conference that nice weather is taking a toll on winter tire sales. Shares are off $1.42 to $13.86. Meanwhile, 21,000 puts and 9,720 calls traded on the stock, which is 6.5X the daily average. Jan 14 puts, which are now 14 cents in-the-money and expiring at the end of next week, are the most actives. 5,380 traded. Jan 15, Feb 14, and April 15 puts are seeing interest as well, in smaller lots. The top trade is 500 Feb $14 puts on the 75-cent bid. Meanwhile, implied volatility in Goodyear Tire options is racing higher today — up 28 percent to 52.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is down .98 to 20.09 and making another test of the 20 “psyche” level. It dipped to a low of 20.34 on 12/22. The market’s “fear gauge” is down 14.1 percent so far in 2012 and falling to levels last seen in late-July, as the S&P 500 has seen average daily price moves of less than 8 points (including today) so far this year. The S&P 500 is grinding higher over the past week and is up 2.9 percent year-to-date. Consequently, the volatility is under pressure and morning options trades in the VIX pit include 10000 Feb 32.5 calls sold at an average of 77.5 cents per contract and possibly a closing trade on the view a move back to the mid-30s over the next few weeks is becoming less likely. Separately, a Jan – Feb 23 put spread is bought on VIX for 43 cents, 10000X, and might roll a bearish position out one month. Overall, trading in the product is active despite the low levels of volatility. 57,000 calls and 75,000 puts traded on VIX so far.

Unusual Volume Movers

Bearish activity detected in Omnicare (NYSE:OCR), with 5749 puts trading, or 4x the recent average daily put volume in the name.

Bullish flow detected in American Eagle Outfitters (NYSE:AEO), with 24732 calls trading, or 5x the recent average daily call volume in the name.

Bullish flow detected in Idenix Pharmaceuticals (NASDAQ:IDIX), with 6191 calls trading, or 6x the recent average daily call volume in the name.