Wednesday Options Recap

by: Frederic Ruffy


Stocks are trading modestly higher on another slow news day Wednesday. The bond market and most government offices are closed for Veterans Day. The stock market averages moved higher early following gains across the Asia/Pacific and Europe. However, after the initial run higher, the market action has been mostly sideways and the Dow Jones Industrial Average is up 33 points heading into the final hour.

The CBOE Volatility Index (.VIX) added 13 to 22.97 and trying to snap a 7-day losing streak. Trading in the options market is active. 4.9 million puts and 6.35 million calls have traded so far (a ratio of .77, compared to a 22-day average of .81).

Bullish Flow

DryShips (NASDAQ:DRYS) is up 20 cents to $6.44 and the Jan10 7.5 - 9 call spread trades at 30 cents on PHLX, 10000X. Looks like a buyer initiating the trade — perhaps 2X because total volume in both contracts now exceeds 20000.

Our systems detect bullish flow in Applied Materials (NASDAQ:AMAT) ahead of earnings after the closing bell today, with 17482 calls trading, or 2x the recent avg daily call volume. Shares are near $13.26 (0.26) and December calls at the $14 strike are the most actives.

Bearish Flow (NYSE:CRM) is down 56 cents to $63.11 and has been drifting lower today, even as two brokers raised price targets on the stock. BofA/Merrill raised their target to $72 from $66 saying their checks indicate a strong finish to the quarter. Amtech raised it to $70 from $60 ahead of a Nov 17 third quarter earnings release. Yet, CRM is seeing relative weakness and, in the options market, 12K puts traded. The volume represents 7X the expected for midday and compares to 1,310 calls. Dec 55 and 60 puts are the most actives. On the ISE, sentiment data indicate that 3258 put options (60% of the volume) have been bought-to-open today.

Implied Volatility Movers

Alkermes (NASDAQ:ALKS) is up 10 cents to $7.68 and trying to battle back from a 3-week 16 percent slide. In the options market, some players seem to be looking for this biotech to bounce. Options volume is running 8X the average daily on increasing interest in Jan10 7.5 calls. 2800 traded (93 percent ask-side) vs. 585 of open interest. Implied volatility (average) is up as well, to 115 percent, from 113.5 yesterday and less than 100 last Friday.

Implied volatility is also higher in Applied Materials (AMAT), Green Mountain Coffee Roasters (NASDAQ:GMCR), and Sigma Designs (NASDAQ:SIGM). Meanwhile, implied volatility is lower in Macy's (NYSE:M), Starbuck's (NASDAQ:SBUX), and Hovnanian (NYSE:HOV).