Wednesday Options Recap

by: Frederic Ruffy


Stocks opened higher following a round of better-than-expected economic data, and have since slipped into a post-holiday lull midday. Data released before the opening bell on Wall Street showed personal incomes and spending increasing by .2 percent and spending by .7 percent, respectively, in October, which was better than the .1 percent and .5 percent economists had expected. Separate data showed weekly jobless claims falling by 34,000 to 466,000 in the period ended November 21. Economists were looking for a smaller 1,000 decline.

The latest durable goods report was a bit of a downer, however. It showed an unexpected drop in October. Total orders fell .6 percent and, excluding transports, fell 1.3 percent. Economists were looking for a modest increase.

A little later, at 9:55 eastern time, the University of Michigan reported that its consumer sentiment index improved to 67.4 in late November, up from an initial reading of 66 and somewhat better than the 67 economists had predicted. The latest new home sales numbers also topped estimates, up 25K to an annual rate of 430K in October, compared to 404K economist estimates.

With no earnings of broad market significance to guide the market action, and many traders leaving early for the Thanksgiving holiday, the major averages opened higher and the Dow Jones Industrial Average has stayed in a range heading into midday, up 21 points. With two hours left to trade, volume is light, with approximately 2.9 million puts and 4 million calls traded so far (a ratio of .73 compared to a 22-day average of .81.)

Bullish Flow

XTO Energy (XTO) is up 22 cents to $42.31 and an investor apparently sells 21K Jan10 47 calls at 40 to 42 cents while buying 10K Feb 44 calls at $2.08 each, on the ISE. The spread appears to roll a position in the Jan 47 calls opened in mid-October at about $2.25 (shares were around $44.50) and opens a position, half the size, in the February 44s.

Research In Motion (RIMM) is up 32 cents to $59.85 and the Dec 65 - 70 call spread trades at 94 cents per contract, 8650X. Looks like a buyer. It's also traded more than once, as volume in both contracts now exceeds 22K.

Bearish Flow

Open interest in Proshares UltraShort Basic Materials (NYSEARCA:SMN) April 12 calls increased by 14.5K and is now the second largest (at 29.15K) of any SMN options contracts. Yesterday's flow included a block of 13,860 contracts offer-side at $1.05, which appears to be a bullish bet on the fund and therefore a bearish play on the basic materials sector.

Implied Volatility Movers

The CBOE Volatility Index (.VIX) is down .13 to 20.37 and made a run back towards the 20 "psyche" level, to 20.05, ahead of the break. Meanwhile, in VIX options, one player seems to be looking for a rally in the VIX. They paid 4 cents for the Dec 27.5 - 32.5 (1X2) call ratio spread, 25000X!

Implied volatility is also lower in Deere (NYSE:DE), J Crew (JCG), and Tiffany (NYSE:TIF). Implied volatility is higher in Medivation (NASDAQ:MDVN), Warner Music (NYSE:WCG), and BofA (NYSE:BAC).

Unusual Volume Movers

Origin Agritech (NASDAQ:SEED) is seeing 4X average daily trading volume, with 36,000 contracts traded and call volume representing 64 percent of today's activity.

Allstate (NYSE:ALL) is seeing 2X average trading volume, with 26,000 contracts traded and call volume representing 99 percent of today's trading activity.

Medivation (MDVN) is seeing 7X normal trading volume. 21,000 contracts have traded, with puts representing 93 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in the A-Power (NASDAQ:APWR), Gap (NYSE:GPS), and TiVo (NASDAQ:TIVO).

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