Monday Options Recap

by: Frederic Ruffy


Stock market averages are sporting solid gains late Monday. Germany’s DAX rose 1.2 percent and helped pace a modest advance across the Eurozone before the opening bell rang on Wall Street. Stocks were also helped higher Monday morning after Federal Reserve Chairman Ben Bernanke pledged accommodative monetary policy to help spur the economy and stimulate jobs growth. The only economic stat on the calendar showed Pending Home Sales down .5 percent in February. Economists had predicted a .5 percent increase. There seemed to be little reaction to the data. Instead, the bullish underlying tone continues amid light volumes. Crude oil is up 26 cents to $107.12 per barrel and gold gained $26.5 to $1689 an ounce. The Dow Jones Industrial Average rallied early and added to the gains throughout the day. The Dow is now up 150 points and 11 points from session highs. The Nasdaq rallied 51 points. CBOE Volatility Index (.VIX) is off .25 to 14.57. Trading volume is on the light side, but reflects the sentiment. 7.2 million calls and 5.5 million puts traded across the exchanges so far.

Bullish Flow

Groupon (NASDAQ:GRPN) adds 47 cents to $17.36 and options volume on the stock is running 3X the daily average, being led by an Oct 13 – 20 bullish risk-reversal, at 45 cents, 9820X on PHLX. The investor sold puts to buy calls and open a new position. It’s tied to 269K shares at $17.02. The bullish position in GRPN is being initiated despite uninspired action in the share price lately. GRPN is down 29.4 percent since earnings were reported on 2/8 and is well below its post-IPO early-November highs of more than $31.

Very large five-way spread is opened in Micron Technology (NASDAQ:MU) today. Shares are down 15 cents to $8.25 and one strategist sold 11,000 Jul 8 puts on the chipmaker at 74 cents per contract and sold 11,000 May 8 puts at 45 cents to buy 90,000 Apr 10 calls for a nickel, 65,000 May 10 calls for 12 cents, and 50,000 July 11 calls for 19 cents. All this was tied to 3.5 million shares at $8.22 and is opening. A similar trade surfaced in Micron in late-February and the day after the company announced a new NAND flash memory joint venture with Intel (NASDAQ:INTC). Shares are down about 5 percent since that time and slipped on earnings news last week.

Bearish Flow

PowerShares Bullish Dollar Fund (NYSEARCA:UUP) loses 8 cents to $21.94 and 25,000 Sep 22 calls are sold on the ETF this morning at 56 cents per contract. 30,370 now traded against 11,180 in open interest and might be part of an overwrite strategy on the fund, which tracks the performance of the dollar against a basket of other major currencies. Shares have not performed well in the past two weeks and are down 2.1 percent since 3/14 following a recent rebound in the euro.

Implied Volatility Mover

Arena Pharmaceuticals (NASDAQ:ARNA) is rallying today and implied volatility in the options on the stock is up sharply amid high call volume after the European Medicines Agency accepted the biotech’s Lorcaserin as a weight loss drug. ARNA is up 57 cents to $2.98 and its best levels since September 2010 on 27 million shares traded, which is 10X the typical volume for the first two hours of trading in ARNA. Meanwhile, 18,000 calls and 6,880 puts traded on the stock. While Apr 3 calls are the most actives, with 2,300 traded, the flow is scattered across a variety of Apr, May, Jun and July puts and calls with strikes ranging from 2 to 6. Meanwhile, levels of implied volatility have surged 48 percent to 162. The FDA has an NDA resubmission date for Lorcaserin of May 10.

Unusual Volume Movers

Bearish activity detected in Cavium (NASDAQ:CAVM), with 3075 puts trading, or 2x the recent avg daily put volume in the name.

Bearish activity detected in St Jude Medical (NYSE:STJ), with 6575 puts trading, or 8x the recent avg daily put volume in the name.

Bullish flow detected in Tesla Motors (NASDAQ:TSLA), with 7479 calls trading, or 3x the recent avg daily call volume in the name.

Meanwhile, unusually high options volume is being seen in iPath Short-term VIX Futures (NYSEARCA:VXX), Qualcomm (NASDAQ:QCOM), and Corning (NYSE:GLW).