Tuesday Options Recap

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Includes: AMZN, AZN, BID, CBIO, DAL, NTAP, ORCL, STP, TIF, VXX, YGE
by: Frederic Ruffy

Sentiment

Stock market averages are sporting modest losses late Tuesday. Volatility overseas set the table for morning weakness on Wall Street. Hong Kong’s Hang Seng lost 1.1 percent amid concerns about China’s economy after iron ore producers warned of weakening prices. Stocks moved broadly lower across the Eurozone as well, with Germany’s DAX losing 1.4 percent and France’s CAC 40 shedding 1.3 percent, on lingering concerns about the debt crisis. The domestic economic news included a drop in Housing Starts to an annual rate of 698,000 in February, which was 7,000 worse than expected. However, Building Permits, which offer a better harbinger of things to come, improved to 717,000 and 22,000 more than had predicted. Still, the Dow Jones Industrial Average followed overseas markets lower and suffered a triple digit loss in morning trading. The Dow has since come off its lows in choppy and uninspired action. The Dow is now down 56 points. The NASDAQ lost 2.6 points. CBOE Volatility Index (.VIX) edged up .41 to 15.45. Trading in the options market is slower than Monday and reflects the more cautious underlying tone. 6.9 million calls and 5.9 million puts traded across the exchanges so far.

Bullish Flow

NetApp (NASDAQ:NTAP) is up $1.41 to $45.47 and seeing relative strength today on high volume of 9.5 million shares. Typical volume through midday is about 3.5 million. Meanwhile, 17,000 calls and 4,200 puts traded on the network storage device specialist. The top trade is a 2500-lot of Jun 47 calls at $2.54 and appears to be an opening position tied to 105K shares at $45.41. Apr 44 and Jun 49 calls are actively traded in NTAP today and levels of implied volatility moved up 9.5 percent to 31. No headlines to explain the high volume on the stock.

Delta Airlines (NYSE:DAL) adds 22 cents to $9.53 and calls on the airliner are flying off the shelves today. Jun 10s are the most actives. 5,250 traded (87 opecent Ask). Apr 10, May 9, May 10 and Jun 9 calls are busy as well. Total volume is 16,000 calls and 1,560 puts, even as share volume is 8.3 million and about 20 percent less than normal. Levels of implied volatility moved up 4 percent to 43.5. Some investors might be buying calls on the stock and anticipating a rebound after the 18.5 percent loss suffered from 2/3 through last Friday. Higher crude oil prices have been weighing on the industry. However, crude is down $2.32 to $106.24 late Tuesday

Bearish Flow

Targacept (TRGT) is off $1.83 to $5.58 on heavy volume of 5.3 million shares after the company, along with partner AstraZeneca (NYSE:AZN), halted the development of an experimental antidepressant following disappointing results from a late-stage trial. TRGT tanked on the news and one strategist bought a TRGT May 5 – 10 bearish risk-reversal on the stock for 30 cents, 5000X (sold calls to buy puts). It might be a closing trade or possibly a bet on further losses for the stock, which is currently on the Short Sale Restricted list.

Implied Volatility Mover

Active trading continues in the iPath Short-Term Futures Fund (NYSEARCA:VXX). Shares are down 26 cents to $20 and an Apr 20 straddle was recently sold on the ETF at $3.49, 6700X. 26050 of the at-the-money Apr 20 puts now traded on the fund. Earlier in the day, a 19500-contract block of Sep 12 puts traded on VXX for 52 cents per contract on ISE. Data indicate an opening buyer and it probably adds to positions opened yesterday for 45 cents (see 3/19 color). Apri 16, 18 and 19 puts are actively traded as well. The April 20 is the most active call option. Total volume is 87,000 calls and 141,000 puts. VXX is down again today despite a 4.6 point loss in the S&P and a .25-point gain in VIX. Shares of the volatility fund have tumbled 28.2 percent since Feb 10.

Unusual Volume Movers

Bullish flow detected in Suntech Power (NYSE:STP), with 8664 calls trading, or 3x the recent avg daily call volume in the name.

Bullish flow detected in Yingli Green Energy (NYSE:YGE), with 5089 calls trading, or 4x the recent avg daily call volume in the name.

Bullish flow detected in Sothebys (NYSE:BID), with 5778 calls trading, or 3x the recent avg daily call volume in the name.

Meanwhile, unusually high options volume is being seen in Oracle (NASDAQ:ORCL), Tiffany (NYSE:TIF), and Amazon.com (NASDAQ:AMZN).