Monday Options Recap

by: Frederic Ruffy


The major averages opened modestly higher and are holding slim gains in slow trading Monday. The Dow Jones Industrial Average followed European equity benchmarks higher after Abu Dhabi agreed to lend Dubai $10 billion to avert a default on a key bond set to expire today.

Merger and acquisition news helped as well. XTO Energy (XTO) rallied on news Exxon Mobile (NYSE:XOM) is buying the company for $41 billion and a 25 percent premium Friday's closing price. Sun Micro (JAVA) jumped after Oracle said it was in constructive talks with the EU about its bid for JAVA.

With no economic data or earnings to guide the action, the Dow opened higher and has traded in a very narrow 38-point range. With less than an hour to trade, the industrial average is up 24 points. The CBOE Volatility Index (.VIX) slipped 1 to 20.59. Trading in the options is running about the normal pace, with approximately 4.7 million puts and 5.6 million calls traded so far (a ratio of .77, compared to a 22-day average of .75.)

Bullish Flow

A couple of the gold miners are seeing options action Monday. Gold Fields (NYSE:GFI) is up 32 cents to $14.16 and options activity is running at 3X the average daily pace, with 22,000 calls and only 250 puts traded on the gold miner. The action comes as gold adds $4.60 to $1124.50 an ounce. The bulk of the flow is in January 2010 calls at the 15 line, with 21,725 contracts traded and 91 percent hitting ask-side. While open interest is sufficient to cover, ISEE data indicate that the top trade today (4981 at the offer of 50 cents on ISE) is an opening customer buyer. It was part of a multi-exchange sweep of 11,000 contracts.

Harmony Gold (NYSE:HMY) is up 26 cents to $10.45 and options action is running 2X the average daily. Recent trades include a multi-exchange sweep of 5613 Feb 11 calls at the offer for 75 cents, which is an opening customer buyer, according to ISEE. 10,344 now traded (95 percent ask-side), lifting implied volatility 5.5 percent to 56.5.

Bearish Flow

Oshkosh (NYSE:OSK) saw a morning sell off and is down $3.84 to $37.12 after the Government Accountability Office validated a protest of a Pentagon award to the trucking company and recommended that the US Army re-evaluate its selection of OSK to provide military vehicles. The stock sank on the news and options volume is running 10X the average daily, with 31K puts and 27K calls traded so far. Not all of the flow is bearish. In fact, Jan10 calls at the 40 line are the most actives and the stock is 14 percent off morning lows after company said it believes the Army's decision will be maintained.

Implied Volatility Movers

Supergen (SUPG), a Dublin, CA pharmaceutical company, is up 14 percent to $2.97 and options volume is running is 69X the average daily on increasing interest in April 2.5 calls. 7233 contracts traded vs. 220 in open interest. In addition, on the ISE, where the lionshare of today's calls changed hands, ISEE data indicated that nearly all (or 6641 contracts) are opening customer buyers. No headlines today. Implied volatility (April 2.5 calls) is rallying to 77.5, up 23.7 percent since Friday.

Unusual Volume Movers

Citi (NYSE:C) is seeing 3X average daily trading volume, with 972,000 contracts traded and call volume representing 72 percent of today's activity.

Exxon Mobile (XOM) is seeing 5X average trading volume, with 203,000 contracts traded and calls representing 56 percent of today's trading activity.

XTO Energy (XTO) is seeing 9X normal trading volume. 116,000 contracts have traded, with call options representing about 60 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Best Buy (NYSE:BBY), Chesapeake (NYSE:CHK), and Oracle (NYSE:ORCL).