Tuesday Options Recap

Includes: AAL, CP, ELX, JPM, MS, QQQ, REE, UUP
by: Frederic Ruffy


Stock market averages opened higher on economic data and then gains were extended after the FOMC rate announcement. Data released before the opening bell showed Retail Sales up 1.1 percent in February and .1 percent more than expected. That, and solid gains across Europe’s equity markets, helped set the table for morning strength heading into the Federal Reserve’s policy announcement. Trading was choppy when the news hit the wires, but as expected the Fed left rates unchanged and signaled no significant changes to policy. Bonds suffered a beat-down and gold faltered as well. The yellow metal is off $13.3 to $1686.50 an ounce. Crude gained 44 cents to $106.88. JP Morgan (NYSE:JPM) also helped after announcing a dividend increase and share buyback amid the post-FOMC market rally. The Dow Jones Industrial Average is now up 171 points and near session highs. The NASDAQ gained 41.5 points. With forty-five minutes left to trade, CBOE Volatility Index (.VIX) is up .17 to 15.81. Trading in the options market is busy and reflects the bullish underlying tone. 8.8 million calls and 6.6 million puts traded across the exchanges so far.

Bullish Flow

Rare Element (NYSEMKT:REE) is up 57 cents to $6.28 and enjoying a four-day 24.8 percent move higher. However, prior to last Wednesday, the stock had suffered a one-month 28.8 percent slide. Some players in the options market seem to be anticipating additional strength in the stock. 7,730 calls and 3,670 puts traded in the name so far today. Some of the flow is apparent rolling of synthetic short positions in Mar 9 puts and calls to Apr 9s. However, Apr 7 calls, which are 11.5 percent out-of-the-money and expiring in 38 days, are the most actives. 2,935 changed hands. Meanwhile, levels of implied volatility in REE options moved up 6 percent to 77.5 on reports Obama will announce a new case against China related to the supply of rare earth materials. MCP and AVL also higher on the day.

Bearish Flow

US Airways (LCC) adds 15 cents to $7.04 on volume of 2.4 million shares, which is well below the expected volume of 4.1 million. However, options on the airliner are actively traded. 13,000 puts and 1,100 calls so far. The top trade is a 4,217-lot of Apr 6 puts, which was bought for 23 cents per contract. More than 10,000 now traded against 1,116 in open interest. April 7 puts are also seeing some interest and levels of implied volatility in LCC options edged up 1.5 percent to 61. The stock is up 75 percent from the lows seen in late-November, but has not performed well in the past month. LCC is down 27.1 percent since 2/3. Today’s options order flow seems to reflect concerns about additional losses in the weeks ahead. Earnings were last reported on Jan 25.

Implied Volatility Mover

Hefty 1X3 in the Qs after 21,000 April 65 calls were apparently sold on the ETF at $1.62 to buy 63,000 April 67 calls for 59 cents. QQQ is up 66 cents to $65.71 and the spread might roll from in-the-money calls to a new larger position in OTM calls on the NASDAQ 100 Fund. Implied volatility in the Qs, as measured by the QQV Index, is down 17.5 percent in the past five days and to 14.7, but not imploding to four-year lows like the VIX at 13.99 Tuesday morning.

Unusual Volume Movers

Bullish flow detected in Canadian Pacific Railway (NYSE:CP), with 5963 calls trading, or 8x the recent average daily call volume in the name.

Bullish flow detected in Emulex (NYSE:ELX), with 4941 calls trading, or 5x the recent average daily call volume in the name.

Meanwhile, unusually highs options volume is being seen in JP Morgan (JPM), Morgan Stanley (NYSE:MS) and PowerShares Bullish Dollar Fund (NYSEARCA:UUP).

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