Tuesday Options Outlook: XLE, INTC, GIS, EK, CLR, MDT, FO, RRI, HNT, PEIX

Energy Select Sector SPDR (XLE) – Shares in the oil ETF are up .41% this morning to $89.88, hovering around yesterday’s highs. Meanwhile, a massive 152,400-lot put spread went through this morning in the June contract, with the June 84 put strike trading for $1.69 and the 87 strike trading for $2.65. The was an apparent credit spread in the puts, with the trader taking a 96-cent credit on the trade in a bullish bet on the direction of the ETF that comes as no great revelation in the midst of another day of nosebleed-high oil prices. The trader in this case hopes both puts will expire worthless due to continued upside in the price of the underlying past the strike prices indicated, and that the spread between the strikes will narrow.

Intel (INTC) – Shares in Intel are down 2.8% to $24.19 and a bias among option traders to position defensively in puts may extend from concerns that the recent earthquake in China may have some impact on Intel’s plant in Chengdu, which handles more than a quarter of Intel’s packaging and testing functions. An early blurb from AmTech on Briefing.com this morning surmised that while there was no material impact to its business and no significant damage to the plant, the facility might not operate at full capacity for some time. In any event, option traders sought long positions in June 24 puts, extending into the July contract at the 24 and 25 strikes, consistent with a defensive posture on its share price prospects.

General Mills (GIS) – Inflationary concerns led to at least one knee-jerk reaction to seek defense against declines in a major food maker. This occurred in the options of General Mills, where shares are showing a resilient .32% gain on the session to $62.13, but an early increase in option trading activity to nearly 3 times the normal level occurred squarely in October 65 puts. While the strike here is nominally in-the-money, the price of the contract at $5.20 demands a break below $59.80 – that’s more than $2 below the current share price – just to break even.

Reliant (RRI) – Shares in Reliant, the Texas-based provider of non-utility electricity service to 1.8 million retail and wholesale customers, rose 3.7% to $25.20 today after analysts at Credit Suisse upgraded the stock to “outperform.” Shares have turned in a relatively flat performance over the past year (compared to sector peers), chalking up marginal declines of 4.8% for the year to date, and 7% for the past 52 weeks. But movement could be in its midst, given the apparent interest in the July 25 straddle, which traded to the middle of the market for $2.60. This could be regarded as a cheap bet for a long volatility player, as the upside breakeven would still leave Reliant Energy $3 below its 52-week high. Today’s straddle volume sent option volume to more than 25 times the normal level.

HealthNet (HNT) –Early-morning deal scuttle involving a would-be bid for managed health care provider HealthNet by Aetna sent shares more than 6% higher to $29.14 as option volume surged to more than 9 times the normal level due to a rash of buying in June 30 calls. The more than 20,000 lots trading at this strike compare to open interest of no more than 4,000 lots. The put side of the equation also attracted traffic of more than 6,000 lots. Implied volatility on HealthNet options rose some 25% on the news but at 33.8% still ticks in well below the 44% historic reading. Today’s volume matches up to more than a third of its open interest. HealthNet shares have lost more than 41% of their value so far this year.

Pacific Ethanol (PEIX) – A recalibration of market sentiment on ethanol companies continued for a second session today as witnessed in the option activity of Pacific Ethanol, the West Coast producer whose earnings surprised the market positively yesterday. Shares are up more than 22% today to $6.29 and implied volatility has already risen more than 28% - making it one of the day’s top volatility gainers even in the early session – meanwhile, a 25-fold increase in option trading volume appears centered in June 5 and 7.50 calls, trading to buyers and sellers in excess of open interest.

Eastman Kodak (EK) – For a second session since its May 1 earnings report, option traders in Eastman Kodak are showing an unlikely penchant for out-of-the-money call strikes as implied volatility shows particular acute price risk over the next 30 days. On May 9, Eastman Kodak options piqued our market scanners with an 11-to-1 overweight of call volume accompanied by a 30% move higher in implied volatility. This morning the reading of implied volatility once again spiked 28%, with the sway toward calls even more pronounced at 24 to 1 against puts. Once again option traders appear to be favoring the 17.50 and 20 strikes, the latter strike trading already in excess of open interest, which would seem to rule out the simple closeout of positions opened on May 9. This interest in calls is particularly eye-catching given the 1.7% decline in Eastman Kodak shares to $16.72.

Continental Resources (CLR) – Shares in Continental Resources blasted 20% higher this morning to $61.32 – a new 52-week high – on news of the completion of a well in North Dakota’s Three Forks/Sanish formation. The news comes just two weeks after Continental Resources reported a 64% gain in Q1 profits. Interest in its options surged to more than 4 times the normal level, with the 16,000-strong volume comparing to a total open interest of just over 19,000 lots. Noteworthy in this respect was what appeared to be call spread activity in the September contract with the 50 calls trading for $14.40 and the 65 calls trading for $7.30. The trader in this case may have bought the lower strike calls but pared the cost of the now deep-in-the-money strike by selling the higher strike for $7.30.

Medtronic (MDT) – Shares in Medtronic, the medical instruments maker, rose 2.3% to $48.99 after the company reported that its drug-coated Endeavor stent generated $81 million in U.S. sales in the fiscal fourth quarter. Implied volatility on all Medtronic options contracted 30% as option volume accelerated mightily, with twice as many calls trading as puts. While heavy volume was reported at the June 50 strike, we observed volume of nearly 4 times the open interest occurring at the 47.50 put strike in the front month. The price of this strike is down nearly 62% on the session.

Fortune Brands (FO) – Earlier today it was announced that a New York courtroom had rejected claims by Fortune Brands, the diversified consumer brands company, seeking to block the acquisition of former Swedish government liquor monopoly Vin och Sprit (maker of Absolut Vodka) by France’s Pernod Ricard. Reuters’ Stockholm bureau reported that Fortune Brands had filed lawsuits in Stockholm and New York. Shares turned moderately lower, down .73% to $70.99, but option volume surged to more than 29 times the normal level due to what looks like ratio put spread activity in the July contract. In this case it would make most sense for the trader to sell 2 of the July 65 puts for 55 cents to fund some of the purchase of 70-strike puts for $1.90, creating a debit spread between strikes that the trader would like to see widen and both contracts exercised.

Rebecca Engmann Darst contributed to this report.