Sentiment
Stock market averages opened higher and then drifted mostly sideways on hopes for Greece Monday. The table was set for morning gains on Wall Street after Greece over the weekend pledged more budget cuts to shore up financials and receive a second round of bailouts. Officials are adopting austerity measure despite flaring protests in Athens and ahead of a March deadline to avoid a messy debt default. The euro ticked higher against the buck and UK’s FTSE helped pace an advance across the Eurozone with a .9 percent gain. With no domestic economic data or earnings of broad market importance, the Dow Jones Industrial Average followed European markets higher at the opening bell and was rangebound in very light volume throughout the rest of the day. Total share volume today is 4.7 billion and about 75 percent the normal levels seen over the past month. The Dow Jones Industrial Average is up 71 points and the NASDAQ has added 25.5 points. CBOE Volatility Index (.VIX) down 1.74 points to 19.05. Options volume is being distorted by a number of names going ex-dividend. 10.3 million calls and 5.7 million puts traded across the exchanges.
Bullish Flow
Yahoo (YHOO) loses 4 cents to $16.09 on the day and recent trades include a three-way, in which the strategist sold 4,000 February 16 calls on the Internet giant to buy 4,000 March 16 – 18 call spreads, paying 23 cents for the three-way and possibly rolling a bullish position out one month. YHOO saw high volume last week after Alibaba’s CEO mentioned the possibility of a complex deal, which would involve taking Alibaba’s Hong Kong unit private. That, in turn, would give Yahoo — Alibaba’s largest stakeholder — cash and an interest in one of Alibaba’s operating businesses. YHOO shares edged up 2.3 percent on the headlines Thursday and Friday. Today’s spread trader is possibly rolling the position to March on the view the stock will continue moving higher over the next 32 days.
Call volume in Southwest Energy (SWN) is approaching 100,000 today. 14,000 puts traded on the stock and share volume, at 3.2 million, is only about half the typical volume for the name. Morning trades include a three-way, in which 2,500 February 34 calls were sold on the stock at 68 cents and 7,500 March 31 calls at $3.95 to buy 11,200 March 34 calls for $2.19. The same three way has traded multiple times today and is possibly rolling of Feb 34 calls, which expire at the end of the week, and March 31 calls, which are $2.61 in-the-money, to buy a new position on March 34 calls. Nearly 50,000 March 34 calls now traded on the Houston, TX oil and natural gas company. Shares are up 2 cents to $33.61. No recent headlines on the stock. Earnings come into play on February 27.
Bearish Flow
Express Scripts (ESRX) loses 17 cents to $50 and one strategist sells 3000 Jan 65 – 80 call spreads on the stock at 85 cents to buy 3,000 Jan 42.5 puts for $3.35. The same three-way traded again for $2.50, 3000X. The activity probably exits a position opened three days after the company announced plans to acquire Medco Health Solutions. On Jul 25, 8000 Jan 42.5 puts were sold on the stock to buy 8,000 65 – 80 call spreads. $1.15 was paid for the three-way. Shares are down 12.6 percent since that time and the strategist is possibly throwing in the towel on hopes for a move to the mid-60s through Jan 2013. ESRX took a 4.6 percent on Feb 6 amid concerns the deal won’t clear anti-trust hurdles. Levels of implied volatility in ESRX options is running to 52-week highs today amid the uncertainty.
Implied volatility Mover
Chelsea Therapeutics (CHTP) loses $1.75 to $3.24 after the FDA placed emphasis on safety data related to a drug being developed by the biotech. Levels of implied volatility in CHTP options are running 47 percent higher to 243 and new 52-week highs. One player in the options market seems to be bracing for further losses in shares. A March 2 – 4 put spread was bought on the stock for $1.30, 10000X to open.
