Tuesday Options Recap

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Includes: MMR, MSFT, NBIX
by: Frederic Ruffy

Sentiment

Market action is mixed following a round of in-line economic data and not much other news to guide direction Tuesday. Data released early showed the Case Shiller Home Price Index falling 3.8 percent January, which follows a 4.1 percent decline the month before. Later, the Conference Board reported that its consumer confidence index fell to 70.2 in March, from 71.6 in February. The data didn't seem to have much market impact and trading was mixed overseas. While Japan's Nikkei rallied 2.4 percent to lead gains across Asia, France's CAC 40 Index lost .9 percent and Germany's DAX was flat. Crude oil has been rangebound and was recently up .26 to $107.29 per barrel. Gold barely budged and is down 50 cents to $1685.1 per ounce. The Dow Jones Industrial Average has seesawed in and out of positive territory, but has traded in a very narrow 40-point range. The Dow is now down 3 points. The tech-heavy NASDAQ is up 10 points. CBOE Volatility Index (.VIX) is ticking higher and edged up .84 to 15.10 despite a second day of light volume in the options market. 6.8 million calls and 5.2 million puts traded across the exchanges thus far.

Bullish Flow

Microsoft (NASDAQ:MSFT) adds 6 cents to $32.65 and is one of 13 Dow stocks moving higher, as the mixed trading continues late-Tuesday. Recent options trades on the software giant include a buyer of 58,000 Jan14 $45 calls for an average of 77.5 cents per contract. The massive premium purchase was not tied to stock and is a new position in the Jan 2014 calls on Microsoft. 60,000 contracts now traded. Microsoft has been a leader in both the Dow and the NASDAQ this year and is now up 25.7 percent year-to-date. Still, $45 calls on the stock are 37.8 percent out-of-the-money. Earlier in the day, 30,000 July 24 puts were sold on MSFT at 10 cents per contract and is possibly a closing trade. The contract is 26.5 percent out-of-the-money and has more than 58K in open interest.

McMoran (NYSE:MMR) gapped lower Tuesday morning and is down $1.93 to $10.21 on heavy volume of more than 8 million shares after updating its Davy Jones oil drilling operation. Jefferies was out with a note today saying the update highlights the risks of ultra deep water drilling projects. The stock is down sharply, but options order flow isn't entirely bearish. Levels of implied volatility have eased 5.5 percent to 91. Meanwhile, 39,000 calls and 14,000 puts traded on the New Orleans, LA oil and gas company. The top trade is 1,343-lot of Apr 12 puts for $2 and possibly a closing trade, as open interest is 44,391 and the biggest open position in MMR options. The most actives are at-the-money and upside calls. Apr 10s have traded 6,470 contracts (51percent Ask). May 12, 13 and 14 calls are also busy and trading predominantly at the offer, as call buyers seem to view the weakness in the stock as an opportunity to open new bullish positions in McMoran.

Bearish Flow


Big print in the Spiders in recent trade is an SPY May 130 - 140 put spread bought for $1.70, 50000X, and likely a short-term hedge. Shares are flat at $141.61 on a day of mixed trading on the Street. 262 S&P 500 decliners and 252 advancers so far. A May 135 - 140 put spread was bought on the ETF earlier for $1.20, 33000X. A third noteworthy trade is 20000 SPY 148 calls bought for 11 cents. 40000 total.

Implied volatility Mover


Neucrine Biosciences (NASDAQ:NBIX) loses 67 cents to $8.32 and one strategist sells 5,000 Apr 7 puts on the stock at 10 cents per contract and sold 10,000 April 9 calls at 30 cents. The 1X2 strangle probably offsets a position opened on 3/15 when the same position was opened for $1.70, 4400X. The stock is up 9 cents since that time and implied volatility is down to about 60 from 90, which has resulted in a hefty loss on the strangle. IV in NBIX is down 36 percent to 59.5 today on news a phase 2 trial of an experimental treatment did not meet endpoints.