Tuesday Options Recap

by: Frederic Ruffy


The major averages battled back from early weakness and are trading mixed late Tuesday. The table was set for morning losses after data showed the US economy growing at a 2.8 percent annual rate in the third quarter, which was revised down from an initial reading of 3.4 percent. The number was in-line with economist estimates, but the data also showed consumer spending increasing 2.9 percent and less than the 3.4 percent initially reported. A wider trade deficit and less business investment were also responsible for the lower GDP number.

Stock index futures slipped in pre-market action on the poor GDP print, and the Dow Jones Industrial Average opened lower when the opening bell sounded on Wall Street. The Dow remained in the red through midday, even after a report on consumer confidence surprised to the upside. According to the Conference Board's Index, confidence rose to 49.5 in November, up from 48.7 in October and better than the 47.5 economists had expected.

Since midday, market action has been choppy, but the major averages have moved off session lows. With an hour left to trade, the Dow Jones Industrial Average is down 4 points, but the S&P 500 is up 1.00. The CBOE Volatility Index (.VIX) is down .79 to 20.37 and now eyeing the 20 "psyche" level. Meanwhile, options activity is slowing ahead of the holiday. Approximately 3.72 million puts and 4.96 million calls traded so far (a ratio of .75, compared to a 22-day average of .82.)

Bullish Flow

GE (NYSE:GE) is up a dime to $16.12 after JP Morgan said that, after meeting with GE's CFO, shares look attractive. One option strategist appears to agree. About 10 minutes ago, an order for 131,500 GE Jan11 22.5 calls was executed on the ISE for 76 per contract. It was an opening customer buyer, according to ISEE data, and could potentially create the largest open interest in GE options. Existing open interest is 24.2K.

Jazz Pharmaceuticals (NASDAQ:JAZZ) saw a spike beginning about 30 minutes ago and is up 96 cents to $8.04 in active trading late Tuesday. Options activity is running 10X the average daily amid increasing interest in Dec 7.5 and 10 calls, with 1949 and 1035 contracts traded, respectively, and about three quarters traded ask-side. No headlines yet.

Bearish Flow

Micron Technology (NASDAQ:MU) is down 2 cents to $7.50 and the Dec 6 - 7 put spread trades 25000X on ISE. Looks like a non-customer or firm buyer paying 18 cents to open a new position. No news on the chipmaker today. Earnings expected around Dec 23 and probably after the December expiration.

Implied Volatility Movers

Sequenom (NASDAQ:SQNM) is up 29 cents to $3.46 and making a run beyond previous November resistance highs around $3.25 to $3.40 per share. In the options market, volume is picking up, with 4950 calls and 320 puts traded. The call volume represents 6X the expected for midday and is focused on Dec and Jan10 $4 calls. While open interest is sufficient to cover in both contracts, ISEE data indicate that customers are buying-to-open new positions. Meanwhile, average implied vols in this biotech are moving up to 170, from about 167 late yesterday. No headlines to explain the action.

Unusual Volume Movers

Origin Agritech (NASDAQ:SEED) is seeing 12X average daily trading volume, with 113,000 contracts traded and call volume representing 87 percent of today's activity.

Verizon (NYSE:VZ) is seeing 2X average trading volume, with 62,000 contracts traded and call volume representing 54 percent of today's trading activity.

Micron Tech (MU) is seeing 5X normal trading volume. 59,000 contracts have traded, with puts representing 90 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in the Select Sector Healthcare Fund (NYSEARCA:XLV), Select Sector Industrials (NYSEARCA:XLI), and Union Pacific (NYSE:UNP).

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