Monday's Options Recap

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Includes: ARNA, CA, FITB, GM, IDCC, MU, WFC
by: Frederic Ruffy

Sentiment

Fear is back. The Dow Jones Industrial Average is down more than 300 points late Monday on renewed concerns about the auto industry, the banking world, and the global economy. General Motors (NYSE:GM) is leading the Dow to the downside. With about 45 minutes left to trade, GM is off $1.10 to $2.52 and not far from session lows after the Wall Street Journal reported that the Obama administration is pushing bankruptcy as the best solution for GM and Chrysler.

General Motors isn't alone. All thirty Dow stocks are under water. The financials opened lower after UBS (NYSE:UBS) said it was cutting more jobs and Spain said it was taking over Caja Castilla-La Mancha – the country's first bank rescue in 16 years. While shares of European banks fell, markets across Asia also suffered steep losses after a report on industrial production in Japan fell 9.4 percent in February. Japan's Nikkei lost 4.5 percent and Hong Kong's Hang Seng slid 4.7 percent. Angst ahead of Thursday's G-20 meeting in London seems to be weighing on global equity markets as well.

In the options market, the rising sense of anxiety is palpable. The CBOE Volatility Index (.VIX) is up 4.96 to 46 and not far from session highs. Trading in the options market picked up from Friday's slow pace, with approximately 5.3 million calls and 5.4 million puts traded so far.

Bullish Flow

Interdigital (NASDAQ:IDCC) is up $4.48 to $26.57 and setting a series of new intraday highs today. The stock opened up after the company announced that it is expanding its development and licensing biz through investment in cellular and non-cell technologies. It is ceasing the development of its SlimChip product, cutting 100 jobs, and taking a $45 mln charge against Q2 earnings. Cost savings could add 50 cents to EPS in 09 and 70 cents in 2010. IDCC options are seeing brisk trading, with active buying seen in April 25, April 30, and May 30 calls.

Fifth Third (NASDAQ:FITB) is bucking the bearish trend. Shares are up 18 cents to $2.53 and April 2.5 calls are active. 11.25K contracts traded, compared to open interest of 17,121. Activity looks to be a mix of buyers and sellers. The increasing activity comes on news the company is selling its payments-processing business to Advent Int'l for $561 million.

Bearish Flow

The CBOE Volatility Index (.VIX) is up 4.95 to 45.99 and not far from session highs (46.18) amid increasing demand for portfolio protection. 421K S&P 500 (.SPX) puts traded so far, compared to 134K calls. The top trades in the VIX don't seem to reflect expectations for higher volatility. In fact, the top trades in VIX options today are May 35/30 put spreads, traded 10000X for 55 cents.

Computer Associates (NASDAQ:CA) is seeing active trading Monday. Shares are down 7 cents to $17.14 and the top trade of the day is 5,325 August 20 calls for $1.10, a purchase tied to shares, delta neutral, according to an exchange-floor contact. August 17.5 puts are the most actives, with 6,214 changing hands. ISE sentiment data suggest that nearly all of today's put volume in CA is opening customer buys. Overall, looks like bearish trading and expectations for heightened volatility in CA shares.

Implied Volatility Movers

Arena Pharmaceuticals (NASDAQ:ARNA) is down sharply after the company released results from Phase 3 trials of its obesity drug. Patient weight loss was apparently not as dramatic as some investors had hoped and shares are down $1.39 to $3.11. Implied volatility is lower now that some event risk has passed. IV is down to 205 from about 350 the day before.

Implied volatility is also lower in the CBOE Volatility Index (.VIX) options and that's about it Monday. Volatility is higher across the board, including in General Motors (GM), Wells Fargo (NYSE:WFC), and Micron Technology (NASDAQ:MU).