Wednesday Options Recap

by: Frederic Ruffy


Stocks bounced back from early losses and are trading higher late Wednesday. With no economic data on the calendar, the focus remained on earnings early. The results were mixed, but the financials opened lower after MorganStanley (NYSE:MS) posted a wider-than-expected loss. Shares of the investment bank traded down more than 7.3 percent in pre-market trading and set the stage for an early decline at the opening bell Wednesday.

However, in a pattern similar to Tuesday, the early decline in the financials was short-lived. After falling to a low of $10.20 per share early, the Select Sector Financials, an exchange-traded fund that holds all of the financial-related stocks from the S&P 500, rallied back up to $10.70, up 10 cents on the day.

Meanwhile, Caterpillar (NYSE:CAT) is the best gainer in the Dow Jones Industrial Average. Shares are up 5.6 percent after JP Morgan upgraded the stock to Buy. 16 Dow stocks are higher, 14 lower, and the industrial average is up 60 points heading into the final 45 minutes of trading. The CBOE Volatility Index (.VIX) slipped .78 to 36.36. Options volume is light, with approximately 7.3 million calls and 5.9 million puts traded so far.

Bullish Flow

Akamai (NASDAQ:AKAM) is up $1.09 to $20.99 and 19K calls traded today, compared to 4,700 puts. Today's call volume represents 7X (741 percent) the expected for this time of day. Investors are showing a lot of interest in May calls with strike prices ranging from 20 to 25. Implied volatility is little changed at 65. No news on the stock yet today. Earnings due out April 29.

SPDR Homebuilders Trust (NYSEARCA:XHB) is up 47 cents to $13.18 ahead of existing home sales data Thursday and new home sales numbers Friday. One strategist doesn't appear to expect a meaningful move beyond current levels and sold more than 12,000 September 14 straddles (puts and calls at $14 strike) for $4.10 Wednesday morning. Since volume easily exceeds existing open interest in both contracts, the trade appears to be a new position and, if so, one the yields its best profits if XHB closes at $14 per share at the September options expiration.

Bearish Flow

Pharmaceutical Product Development (NASDAQ:PPDI) options are active for a second day. The company reported earnings that missed Street estimates and also guided estimates lower for the rest of the year. Shares are down $3.43 to $18.56 and some put selling is being seen, perhaps unwinding positions opened Tuesday ahead of the news. Implied volatility is moving towards 54, down from about 67 the day before.

Implied Volatility Movers

Implied volatility in Yahoo (YHOO) options has been moving higher ahead of earnings due out after the closing bell. YHOO is up 71 cents, or 5.2 percent, to $14.37 ahead of the news. Implied volatility is moving towards 80, and significantly higher than the mid-60s seen one week ago.

Implied volatility is also higher in Pharmaceutical Product and Development (PPDI), Zionz (NASDAQ:ZION), and Kendle International (NASDAQ:KNDL). Meanwhile, implied volatility is lower in Teck Cominco (TCK), BofNY (NYSE:BK), and Emulex (NYSE:ELX).

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