Wednesday Options Recap

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 |  Includes: AA, FDX, GILD, JPM, SUNEQ
by: Frederic Ruffy

Sentiment

Stock market averages are holding gains with help from earnings news. Alcoa (NYSE:AA) is the best gainer in the Dow Jones Industrial Average after the aluminum-maker unofficially kicked off the reporting season with better-than-expected profits Tuesday afternoon. The economic calendar is light. The Fed's Beige Book was released this afternoon and, in this qualitative assessment of economic conditions, it was noted that that the economy continued a modest expansion from mid-Feb to mi-March. Yawn. The report didn't have much market impact. But gains across the Eurozone seemed to help morning trading. Benign comments from an ECB official about the availability of short-term loans lifted Germany's DAX 1 percent higher. Crude oil has recovered $1.75 to $102.7 per barrel and gold is little changed at $1660 an ounce. The Dow Jones Industrial Average is up 106 points and the tech-heavy NASDAQ gained 22.5. CBOE Volatility Index (.VIX) slipped .52 to 19.86 amid light volumes in the options market. 6 million calls and 5.8 million puts traded so far.

Bullish Flow

MEMC (WFR) saw a morning rally off of 52-week lows and is up 34 cents to $3.68 in active trading of 13 million shares, which is more than double the usual. Options volume on the silicon wafer-maker is also 2.5X the daily average, with 3,900 calls and 1,010 puts traded on the stock so far. The flow has been in smaller sizes. The top trades are 100-lots of May 4 calls at 15 cents. 1,200 traded total. Some players might be bottom-fishing in MEMC after the 12-month 73 percent plunge in shares. Other names in the space -- FSLR, STAC, STP -- are also rebounding from recent losses Wednesday

Bearish Flow

FedEx (NYSE:FDX) adds $1.18 to $87.81 and midday trades on the stock include an Oct 60 - 70 put spread, bought for $1.14, 3700X to open. FDX is rebounding from a five-day 6 percent losing skid today and the spread seems to reflect concerns about further weakness in the stock through mid-October. Shares are down 8.4 percent during the past three weeks. Earnings were last reported on 3/22 and the stock slipped 3.5 percent on the news.

JP Morgan (NYSE:JPM) adds 81 cents to $43.77 and is one of 28 Dow stocks moving higher in the first hour Wednesday. Recent options trades on the bank include a Sep 30 - 35 put spread, bought for 54 cents, 13000X. It's possibly a position adjustment, as open interest is sufficient to cover in the Sep 35s. Or, it's an opening spread on the view JPM will give back today's gains and make a move to $30 (~31.5 percent) by mid-September. The stock suffered a five-day 6.9 percent losing skid prior to today, but is up 31.5 percent year-to-date. The company is due to report on Friday the 13th and so triskaidekaphobia might be motivating the massive put spread purchase in the bank today.

Implied volatility Mover

Gilead Sciences (NASDAQ:GILD) adds 2 cents to $45.74 and an Apr 48 - 52.5 call spread is bought on the stock for $1.05, 10000X. The position is opening and tied to shares at $46, delta neutral. Term structure of GILD vols is jacked up in the front-month. Apr is near 70, compared to mid-30s in the back months. The steep curve along with opening of a big call spread in the April options, which expire in two and half weeks, seems to reflect expectations for a catalyst to move the stock in the near-term. Earnings are due out Apr 26 and after the expiration. The company presents at a European Assoc for the Study of the Liver Apr 18 - 22.