Tuesday's Options Recap

by: Frederic Ruffy

Stocks opened lower Tuesday morning, as some investors probably booked profits after a 498 point rally in the Dow Jones Industrial Average the day before. With no economic data and not much earnings news to guide the market, the major averages have been range-bound throughout most of the day. The Dow Jones Industrial Average traded in a narrow 132-point range and is down 40 points heading into the final hour of trading.

Trading in the options market is slowing after several days of heavy volume. Approximately 6.8 million calls and 5.1 million puts traded so far. The CBOE Volatility Index (.VIX) is down 1.09 to 42.13, as day of quiet trading yields a modest decline in risk perceptions.

Investors now await reports on home sales and durable goods Wednesday morning. Best Buy (NYSE:BBY) Lennar (NYSE:LEN), and Conagra (NYSE:CAG) are among a handful of companies due to report earnings before the bell tomorrow. Crude oil erased early losses and is unchanged at $53.80 a barrel ahead of crude oil inventory data Wednesday at 10:30 a.m. eastern time.

Bullish Flow

Interest in Las Vegas Sands (NYSE:LVS) call options continues. Shares are up 49 cents to $3.14 and 40,000 contracts traded, compared to 1,850 puts. No obvious on the stock today and some of the volume might be closing. Investors have been showing interest in LVS calls throughout the month of March (including yesterday) Shares are up from $2.19 on March 2, or 47.9 percent since March 2, and open interest in LVS calls has more than doubled, from 108K to 218K.

Newell Rubbermaid (NYSE:NWL) is down 59 cents to $6.66 on earnings news, but options order flow is bullish Tuesday. Trading is active in April and May calls at the 7.5 strike. More than 6,700 contracts traded and about 80 percent trading ask-side. Similarly, ISE Sentiment data suggest that 83 percent of today's trades are opening customer buys.

Bearish Flow

Crucell (NASDAQ:CRXL) is down $1.10 to $19.36 and directional sentiment in the options market seems bearish on talk the company is having trouble finding a buyer. Wyeth (WYE) withdrew from merger discussions with CRXL on Jan 26. Options volume is running at 5X the average daily, with 2,300 calls and 560 puts traded so far.

Options activity in Valspar (NYSE:VAL) is running at 7X the average daily levels. Shares of the Minneapolis-based building materials co. are down 18 cents to $19.32 and the July 17.5/15 put spread trades 3000X on NYSE. Looks like a buyer paid 75 cents, possibly rolling up from the lower to the higher strike.

Implied Volatility Movers

Dryships (NASDAQ:DRYS) is up 53 cents to $5.43 and directional flow in the options market seems to reflect some optimism ahead of earnings. 53K calls traded, compared to 22K puts. Players are actively buying April 5 and 7.5 calls, as well as April 5 puts. Implied volatility is jacked up--170 percent in April, compared to 159 in May. The skew hints at a possible earnings gap move of $1.15 per share, or more than 20 percent when DRYS reports after the close.

Implied volatility is also higher in Under Armour (NYSE:UA), T-3 Energy Services (TTES), and Imperial Sugar (NASDAQ:IPSU). Meanwhile, implied volatility is easing in Lennar (LEN), Carnival Cruise (NYSE:CCL), and Seagate (NASDAQ:STX).

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