Tuesday Options Recap

by: Frederic Ruffy


Global equity markets moved mostly higher Tuesday. In Asia, Japan’s Nikkei rose 1.1% and Hong Kong's Hang Seng edged up .6%. Better gains were recorded across the eurozone on talks of the introduction of a eurobond designed to help stem the debt crisis. Italy’s MIB Index led the advance with a 3.4% rally. In the U.S., the news is light and included Existing Homes Sales, which improved to an annual rate of 4.62 million in April, up from 4.47 million in Mach and slightly less than the 4.65 million that was expected. Crude oil slipped $1.12 to $91.74 and gold is back under pressure, falling $20 to $1568.5 an ounce. The Dow Jones Industrial Average is 40 points and the tech-heavy Nasdaq gained 3.5. CBOE Volatility Index (.VIX) is down .59 to 21.42. Trading is active, but volumes are off the levels seen late last-week. 7 million calls and 6.2 million puts traded so far.

Bullish Flow

DryShips (NASDAQ:DRYS) adds 15 cents to $2.40 in active trading of 4.6 million shares after Global Hunter initiated the stock with a Buy rating. 10,000 calls and 400 puts have traded on the stock so far. June. July and Sep 2.5 calls, which are 4.2% OTM, are seeing the bulk of the flow. The activity includes a morning sweep of 1,255 Jun 2.5s for 18 cents and a 1960-lot of July 1961 Jul 2.5 calls for 27 cents per contract. Speculative call buying is lifting 30-day ATM implied volatility up 4.5% to 79, as shares stage a two-day 11.7% rebound after a 13-day 32.7% losing streak.

Hewlett Packard (NYSE:HPQ) is off 8 cents to $21.81 and recent trades on the computer-maker include a three-way spread, in which the investor sold 14,900 HPQ Nov 17 puts at 63 cents to buy 14,900 Nov 24 - 30 call spreads for $1 even. 37 cents was paid for the three-way and appears to be a new position, tied to 675K shares at $21.85. The spread is being initiated ahead of H-P's earnings report, due out tomorrow afternoon. Peer Dell (NASDAQ:DELL), which reports today, is ticking 21 cents higher to $15.18. The spread trade in HP seems to express confidence in the stock through November and or the investor is a willing buyer of shares at $17 (the strike price of the put) during that time.

Bearish Flow

Mosaic (NYSE:MOS) is down 38 cents to $47.69 and options volume on the stock is running 3 times the daily average, being driven by a Jul 47.5 - Jun 50 (3X2) put ratio back-spread, 20,000X on PHLX. The investor sold 20,000 Jun 50 puts at $3.15 and bought 30,000 July 47.5 calls for $3. The July 47.5s, which are almost at-the-money, are opening. The Jun 50s might close a well-timed purchase of 20,000 for $1 on May 1. The stock is down 11.1% since that time and rolling to July 47.5 puts might reflect the view that additional losses are likely in the weeks ahead.

Implied Volatility Mover

Patriot Coal (PCX) is getting smoked today on high volume of 36.8 million shares after a Dow Jones article suggested the company is mulling a restructuring if it can’t meet its near-term financing needs. The stock is down $1.84 to $1.52 and falling to new record lows. 16,000 calls and 59,000 puts traded on the coal producer. Weekly $3 puts, which expire in a few days and are deep ITM after today’s implosion in the underlying shares, are the most actives. 9,020 traded. Weekly, June and Dec 2 puts are the next most actives and 30-day ATM implied vols are screaming more than 200% higher to 370.

Unusual Volume Movers

Bullish flow detected in Idenix Pharmaceuticals (NASDAQ:IDIX), with 7,550 calls trading, or 7x the recent average daily call volume in the name.

Bullish flow detected in Humana (NYSE:HUM), with 7,829 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in HCA (NYSE:HCA), with 4,585 calls trading, or 8x the recent average daily call volume in the name.

High options volume is being seen in Yahoo (NASDAQ:YHOO), Consol Energy (NYSE:CNX) and AT&T (NYSE:T).

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