Wednesday Options Recap

by: Frederic Ruffy


Stock market averages are holding gains with help from economic data Wednesday. A report on Durable Goods was up 1.1% in May and .6% better-than-expected. Later, Pending Home Sales showed a surprise jump to 5.9% and much better than the .5% that was expected. Meanwhile, Italy’s MIB Index is up 2.5% and pacing a broad advance across the eurozone ahead of a two-day summit among EU members. But the euro slipped .2% to 1.247 against the buck. Still, crude oil has added $1.04 to $80.4 following weekly inventory data. Gold is unchanged at $1675 an ounce. The Dow Jones Industrial Average is up 82 points and the tech-heavy Nasdaq has added 10 points. CBOE Volatility Index (.VIX) is up .03 to 19.75 amid a third day of very light volume in the options market. 1.6 million calls and 1.7 million puts traded so far (through 10:50 ET).

Bullish Flow

AK Steel (NYSE:AKS) adds 20 cents to $5.49 after Deutsche Bank maintained the stock as a Hold and lowered its price target to $7.50 from $9.50. Call options on the steelmaker are busy again today. 7,820 calls and 425 puts traded on the stock so far. The flow has been in smaller lots and includes a multi-exchange sweep of 1,115 July 6 calls for 17 cents when the market was 16 to 17 cents. ISEE is indicating an opening buyer. 5,534 now traded. July 5 calls are the second most actives after 1,920 changed hands. 30-day ATM vols in AKS are up 3.5% to 67.5, as speculators appear to be positioning for a rebound in shares, which are down 35.6% in a little more than three months. The stock was the subject of bullish order flow last week as well. No news on the stock. Earnings are due out on 7/24, which is after the July expiration.

Bearish Flow

Aetna (NYSE:AET) adds 43 cents to $41.11 and an investor sells 9,000 July 45 calls on the stock at 54 cents per contract. It might be a closing trade after an Ohio court ruled in favor of the insurance company in a matter related to a Medicaid contract process. Open interest in July 45 calls on AET is 39,411 and the largest position in the name. Today's call seller might be closing a bullish position, as shares ticked higher on the news today and ahead of the Supreme Court's landmark decision on the constitutionality of Obama's Health Care Law, expected tomorrow at 10:00 a.m. Eastern Time. If the entire law or only the individual mandate are rejected, managed care names like AET might see a negative reaction. The group is likely to react positively if the entire law is upheld.

Implied Volatility Mover

Lincare (NASDAQ:LNCR) is rallying on heavy volume of more than 11 million shares mid day Wednesday. The stock was recently up $4.79 to $30.05 on a Financial Times story suggesting that Germany's Linde might make a $40 or greater per share bid for the company. The report has triggered a speculative frenzy in LNCR options. 17,000 calls and 2,350 puts so far. Ranked by volume, July 27, July 30, July 29, July 26, and July 28 calls are the most actives, followed by August 27 and 30 calls. Meanwhile, 30-day at-the-money implied volatility in the options on the Clearwater, FL home oxygen and respiratory products company surged 77% to 62 and to new 52-week highs.

Unusual Volume Movers

Bullish flow detected in Penn Virginia (PVA), with 2,257 calls trading, or 6x the recent average daily call volume in the name.

Bearish activity detected in RadioShack (NYSE:RSH), with 3,151 puts trading, or 2x the recent average daily put volume in the name.

Bullish flow detected in RR Donnelley and Sons (NASDAQ:RRD), with 2,245 calls trading, or 2x the recent average daily call volume in the name.

High options volume is being seen in Schlumberger (NYSE:SLB), Anadarko Petroleum (NYSE:APC) and Merck (NYSE:MRK).

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