Wednesday Options Recap

by: Frederic Ruffy


Stocks are trading mixed on a relatively slow day of trading Wednesday. After a 214-point rally Tuesday, the Dow Jones Industrial Average opened lower under the weight of weak housing data. The numbers, released before the bell, showed Housing Starts falling to an annual rate of 593,000 in May, down from 659,000 the month before and below economist expectations of 655,000. Building permits, a better gauge of future activity, fell to 574,000 and also below economist estimates of 631,000. By midday, however, trading had turned mixed, with help from better than expected report on Industrial Production (+1.2 percent in May vs. .8 percent consensus) along with a turnaround in the energy sector. Crude oil added 77 cents $77.71 a barrel on bullish inventory data. The Dow is now up 3 points and the NASDAQ added 5. The CBOE Volatility Index (.VIX) is off .12 to 25.75. Options trading is picking up a bit heading into the quadruple witch expiration, about 7.6 million calls and 6 million puts traded so far.

Bullish Order Flow

Total open interest in Pfizer (NYSE:PFE) options grew by 113,000 contracts following yesterday’s activity, the largest increase among all single stocks on the day. Most came from a large bullish ratio risk-reveral that traded on the PHLX in two tranches near the end of the day. Overall, the customer bought 60,000 Dec 17 calls and sold 30,000 Dec 15 puts for a small net credit as shares traded near $15.40. Both legs opened and suggest a very strong view for upside in shares over the balance of the year. Potentially replaces a large block of open interest in the June 18 calls that expire Friday.

Fuqi International (OTCPK:FUQI) shares are rallying and investors are buying a lot of FUQI call options on talk about “robust business trends”, according to Briefing. Shares of the Shenzen, China, jewelry company are 74 cents to $9.67 and options volume is running 3X average daily. Some investors are buying the FUQI July 10 calls, with 2690 traded (97 percent Ask). The FUQI Jun 10, July 11, and July 9 calls are seeing interest as well. Implied volatility has eased a bit, down 5.5 percent, but remains elevated at 87.

Bearish Order Flow

Nokia (NYSE:NOK) shares are down 93 cents to $8.89 after the Finnish phone maker pre-announced disappointing second quarter earnings results. NOK is under pressure and 31.1K July 9 puts trade. 90 percent traded on the bid and the action includes a block of more than 10K at 50 cents each. The trade likely liquidates positions opened Friday (see 6/11 color), when NOK July 9 puts were being bought-to-open at between 31 and 34 cents. 40.4K traded total.

Implied Volatility Movers

Pharmacyclics (NASDAQ:PCYC), a Sunnyvale, Calif. biopharmaceutical company, is up 70 cents to $7.21 and implied volatility is falling after the company announced stock purchase agreements with various institutional investors. Under the plan, the company will sell approximately 6.15 mln shares at the $6.51 Jun 15 closing price. Shares are up 10 percent on the news and options volume is 10X normal. Meanwhile, implied volatility is down about 19 percent to 67.

Unusual Volume Movers

BP (NYSE:BP) options volume is running 3X the usual, with 770,000 contracts traded and put activity representing about 53 percent of the activity.

Fannie Mae (FNM) options activity is running 97X the usual, with 272,000 contracts traded and put volume representing 90 percent of the volume.

Nokia (NOK) options volume is running 3X the usual, with 95,000 traded and put volume representing 61 percent of the activity.

Unusual volume is also being seen in Freddie Mac (FRE), US Airways (LCC), and FedEx (NYSE:FDX).

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