Wednesday Options Recap

by: Frederic Ruffy


Stocks wavered in early morning trading after the Commerce Department reported that the US Trade Deficit rose to $40.2 billion in December, from $36.4 billion in November. Economists were looking for a smaller increase, to $36.8 billion. The equity market slide gathered additional momentum mid-morning after Fed Chairman Ben Bernanke delivered testimony that warned higher rates might be in the offing.

However, the morning decline proved short-lived and the Dow had battled back to unchanged by midday. Talk of European government support for Greek credit markets seemed to help keep a floor under morning trading. Then, action turned choppy and, with less than an hour to trade, the Dow Jones Industrial Average is down 14 points. The NASDAQ is flat.

The CBOE Volatility Index (.VIX) is down .72 to 25.28. Trading in the options market is slow, but remains somewhat defensive. Approximately 4.7 million puts and 4.9 million calls traded (a ratio of .96, compared to a 22-day average of .83.)

Bullish Flow

Sprint Nextel (NYSE:S) is down 37 cents to $3.28 after posting a worse-than-expected 34 cent per share quarterly loss. In the options market, much of the focus is on the March 3 put - 3.5 risk reversal, which has traded in odd lots for a total of more than 10K. For example, 467 traded about 5 minutes ago in what appears to be a bullish play for 6 cents. Some of the flow might be tied to shares because large blocks of Sprint shares have also changed hands, including a block of 1.8 million $3.44 and three blocks of 1 million each, at $3.32, $3.33 and $3.36.

Comcast (NASDAQ:CMCSA) is down 3 cents to $15.36 and looks like an investor paid a penny to open a bullish July 12 - 18 risk reversal, 5600X on NYSE. (Sold July 12 puts at 32 cents, bought July 18 calls at 33 cents.)

Bearish Flow

CurrencyShares Euro Trust (NYSEARCA:FXE) is down 93 cents to $136.59 after the euro lost .0104 to 1.3687 against the buck. In the options market, one player appears to be bracing for additional short-term weakness in the European currency. They paid 15 cents for the Feb 135 - 136 - 137 put fly, 10000X. Looks like a new position and, since Monday is a holiday, a bet that FXE will drift towards $136 over the next 7 trading sessions (including today.)

Implied Volatility Movers

Options action heats up in Hess (NYSE:HES) amid renewed takeover chatter. Shares aren't reacting, now trading down 50 cents to $57.19, but 8.980 calls traded, or 5X the expected for the first two hours of trading. The action is scattered across Feb and Mar calls with strike prices ranging from 55 to 75. Implied volatility is up about 2.5 percent to 41.

Unusual Volume Movers

William's Companies (NYSE:WMB) is seeing 18X average daily trading volume, with 117,000 contracts traded and call volume representing about 92 percent of today's activity.

AIG (NYSE:AIG) is seeing 2X average trading volume, with 101,000 contracts traded and calls representing 61 percent of today's trading activity.

Baidu (NASDAQ:BIDU) is seeing 2X normal trading volume. 76,000 contracts traded, with call options representing about 51 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Micron Tech (NASDAQ:MU), Allstate (NYSE:ALL), and WellPoint (WLP).