Tuesday Options Recap

|
 |  Includes: AVGO, CBOE, CBS, GNW, HLF, ITB, LXK, PFE, SE, UNG, XRX, ZNGA
by: Frederic Ruffy

Sentiment

Stock market averages are holding gains with help from manufacturing data Tuesday. ISM was up to 54.8 in April, from 53.4 in March and better than the 53 that was expected. Stock market averages ticked higher on the data in morning trading and were able to build on the gains through midday. From that point, trading has been mostly range-bound and without much conviction. Investors are waiting for April jobs data. ADP offers a peek tomorrow morning when it releases its private sector report. Jobless claims are due Thursday before the Labor Department releases its monthly payroll report Friday morning. Some of the energy names are seeing gains after crude oil added $1.16 to $106.03 per barrel. Gold is flat at $1,664. Earnings are a factor. CBS (NYSE:CBS), Broadcom (BRCM) and the Chicago Board Options Exchange (NASDAQ:CBOE) are among the names reporting after the closing bell. Overall, however, there hasn’t been a significant catalyst to drive volatility since the ISM print. The Dow Jones Industrial Average is up 90 points and 35 points from session highs. The tech-heavy Nasdaq added 18. CBOE Volatility Index (.VIX) is off .82 to 16.33. Options volumes are much better than yesterday. 7.1 million calls and 5.6 million puts traded so far.

Bullish Flow

Call buyers are busy in Spectra Energy (NYSE:SE) ahead of a May 4 earnings report. Shares are up 73 cents and midday trades include a multi-exchange sweep of 2,233 Jun 33 calls for 20 cents per contract (at 11:00). Ten minutes later 1,771 traded for 35 cents. Volume is now 12,505 against 5,322 in open interest. Jun 31 and 32 calls are also seeing interest and 30-day ATM implied vols surged 60.5% to 28, In addition to Friday’s earnings release, the Houston-based natural gas company announced a 28-cent quarterly dividend. The stock is up in five of the past six trading sessions and added 5.5 percent since 4/23.

Bearish Flow

Herbalife (NYSE:HLF) is under pressure today on heavy volume of 23 million shares after the company posted better-than-expected earnings and revenues, but was then later grilled by David Einhorn about distributor disclosures in the post-earnings call. Shares are down $16.32 to $54 and options volume is running 17X the daily average, mostly in smaller lots. The top trade is 990 Aug 80 calls for $1.5 per contract on ISE. It was an unfortunate morning buyer, according to ISEE. The stock has fallen sharply since that time and the market on the Aug. 80 call is now just 35 to 45 cents. Beyond that, the bulk of the flow (66.6%) is in the front-month May options, as players take positions amid the uncertainty raised by Einhorn's pointed questions. 49,000 calls and 27,000 puts traded and 30-day ATM implied vols jumped 32% to 65.5.

Implied Volatility Mover

Zynga (NASDAQ:ZNGA) shares caught a bid Tuesday morning, after setting a new 52-week low on the open, and option volume is well above normal. 14,000 puts and 6,000 calls trading in the opening 40 minutes. Weekly 8 strike puts that expire Friday, May 4, are the most active, with 8,000 on the tape at a average price of 25 cents. The majority of those traded on the bid in the opening seconds of the day. One call buyer may be looking for a bounce however, as 3040 May 9 calls were bought for 30 cents in a multi-market sweep when shares were at $8.13. Levels of implied volatility have eased 9% to 75.

Unusual Volume Movers

Bullish flow detected in iShares DJ US Home Construction Index Fund (NYSEARCA:ITB), with 15,917 calls trading, or 17x the recent average daily call volume in the name.

Bullish flow detected in Lexmark International Group (NYSE:LXK), with 6,856 calls trading, or 6x the recent average daily call volume in the name.

Bullish flow detected in Genworth Financial (NYSE:GNW), with 11,267 calls trading, or 2x the recent average daily call volume in the name.

Pfizer (NYSE:PFE), Xerox (NYSE:XRX) and US Natural Gas Fund (NYSEARCA:UNG) are seeing high options volume.