Tuesday Options Recap

Includes: MSFT, SFLY, WMT, XHB
by: Frederic Ruffy


Stock market averages are sporting solid gains, as attention shifts away from the European debt mess and to the first quarter earnings-reporting season. Coca Cola (NYSE:KO), US Bancorp (NYSE:USB), and Valero (NYSE:VLO) are among the names seeing post-earnings gains Tuesday. Goldman (NYSE:GS) shares have been vacillating between gains and losses. IBM, Intel (NASDAQ:INTC), and Yahoo (NASDAQ:YHOO) report after the closing bell and a barrage of releases are scheduled for Wednesday and Thursday. Strong gains across the Eurozone, including 2.7 percent rallies in Germany's DAX and France's CAC, helped set the table for morning gains on Wall Street as well. The domestic economic news was mixed (see today's Bullish Flow report) and higher crude oil prices helped some of the energy-related names. Crude is up $1.35 to $104.72 per barrel and gold ticked $1.5 higher to $1650 an ounce. Meanwhile, the Dow Jones Industrial Average is sporting a 198-point gain and is near session highs. With 35 minutes left to trade, the NASDAQ is up 60. CBOE Volatility Index (.VIX) lost 1.29 to 18.26. Trading in the options market is busy, with 7.4 million calls and 6.3 million puts traded across the exchanges so far.

Bullish Flow

Microsoft (NASDAQ:MSFT) adds 39 cents to $31.46 and is one of 28 Dow stocks moving higher Tuesday. Morning options trades on the software giant include a four-way spread after one player bought 21,000 Apr 27 - 32 put spreads on MSFT and sold 21,000 May 27 - 32 put spreads. 38 cents was collected on the package and the activity probably rolls a position out an additional month. If so, the new position in the May spread seems to express confidence that MSFT will be trading above $32 (~1.7%) at the expiration (31 days). Earnings come into play on Apr 19.

Homebuilders ETF (NYSEARCA:XHB) is up 26 cents to $21.06 early-Tuesday and an Apr 21 - Jun 23 call spread trades on the ETF at 2 cents, 5385X and is possibly rolling of a bullish position ahead of this week's expiration. April 21 calls are 6 cents in-the-money and have 29,637 in open interest. Yesterday, the NAHB's Homebuilder Sentiment fell to 25 for April, from 28 in March and well below expectations of 29. Today, a report showed Housing Starts at an annual rate of only 654K in March, down from 694K and well below expectations (of 700K). However, building permits, which are arguably a better gauge of future activity, rose to 747K, from 715K and better than the 710K that was expected. By rolling from Apr 21 to Jun 23 calls (out to June and up two strike prices), today's spread seems to be expressing confidence in the homebuilders for an additional two months.

Bearish Flow

Shutterfly (NASDAQ:SFLY) adds $1.20 to $30.26, but one strategist doesn't expect the gains to hold, as a May 25 - 30 put spread is bought on the Redwood City, CA social networking company for $1.75, 2000X on ISE. Data from the exchange confirm the spread was bought to open a new position. SFLY is up 33.5 percent year-to-date, but still well below the highs seen a year ago when the stock fetched more than $66 per share. Earnings will come into play towards the end of the month.

Implied volatility Mover

Walmart (NYSE:WMT) adds $1.15 to $61.73 and is one of 29 Dow stocks holding gains Tuesday afternoon. J&J is the lone loser within the industrial average today. Morning options trades on the world's largest retailer include an Apr 60 - May 62.5 call spread at $1.13, 2000X. The spread has traded multiple times today and possibly rolls a bullish position out an additional month and up in strike prices. More than 12,000 May 62.5 calls traded on WMT and the activity seems to express confidence that the stock's 9.2 percent advance off Feb lows will continue through mid-May. Earnings were last reported on Feb 21. Total volume in WMT today is 29,000 calls and 4,800 puts and levels of ATM 30-day implied volatility are down 4.5 percent to 14.5, but still above the 52-week low of 10.8 seen on 3/21.