Wednesday Options Recap

Includes: AMD, APC, AZN, CELG, F, MA, MON, MOS, XL
by: Frederic Ruffy


The end of the second quarter is wrapping up in uninspired fashion Wednesday. After a 269-point tumble yesterday, the Dow Jones Industrial Average opened steady despite another dose of disappointing economic news. ADP reported early Wednesday that the US economy added just 13,000 private sector jobs during the month of June. The number fell well short of economist estimates, which called for an increase of 61,000. In addition, the bad news comes two days before the Labor Department releases its monthly report. Economists expect Friday’s data to show the economy losing 100,000 jobs and the unemployment rate edging up to 9.8 from 9.7 percent. The underlying tone of trading might remain cautious ahead of Friday’s numbers and the three-day Fourth of July weekend. Indeed, with an hour left to trade, the Dow Jones Industrial Average is flat. The CBOE Volatility Index (.VIX) lost 1.63 to 32.50. Trading in the options market was brisk early in the day, but has since slowed to well below normal pace. About 4.7 million calls and 4.3 million puts traded so far.

Bullish Flow

Mosaic (NYSE:MOS) is up 45 cents to $39.80 and trying to battle back from a grueling 36.2 percent loss sustained since mid-March. In options action, some traders are taking a longer-term view. One player paid $2.50 for the January 2012 $65 call. 3500X. 13.2K now traded vs. 120 in open interest. The call buying seems ambitious, because the contract is 63.3 percent out-of-the-money and it would require a move to $67.50 just to breakeven at expiration. On the other hand, the contract doesn’t expire for a year and a half and MOS was trading above that (67.5) level as recently as January of 2010.

Investors are revved up about Ford Motor (NYSE:F) calls after the automaker said it was paying $3.8 billion in cash to settle debt related to a health care trust. The move signals “confidence it remains on track to deliver ’solid profits’ this year,” according to Reuters. Shares are up 45 cents to $10.33. 110K calls and 43K puts traded so far. August 12 and 13 calls have both traded more than 20000X, with slightly more than half trading at the Ask. Implied volatility is down about 2 percent to 53.5 ahead of auto and truck sales numbers, tomorrow.

Bearish Flow

BP (NYSE:BP) is up $1.06 to $28.73 and noteworthy action is being seen in the August 30 – 35 call spread and August 20 puts. One player bought the puts and sold the call spread, collecting 67 cents on the three way, 5000X. The spread has traded more than 22000X and it likely closes positions opened Friday, when the spread saw similar volume. For example, on Friday, one player paid 17 cents for the three-way, 5000X. Shares are up 6.3 percent on the week and, as a result, this strategist appears to be collecting a respectable profit on the trade. Implied volatility has eased another 5 percent to 75 today.

Implied volatility mover

Anadarko Pete (NYSE:APC) hit a morning low of $34.84 and came within striking distance of its June 9 low of $34.54. Shares are now down 60 cents to $36.07 and 3.5 percent off session lows. In the options, a noteworthy risk-reversal on the ISE at 9:50 when a strategist sold 5000 Nov 27.5 puts at $3.41 apiece and bought 5000 Nov 40 calls at $5.01. ISEE data also shows a separate block of 1042 July 45 calls were bought-to-open at 34 cents 20 minutes later. Implied volatility in APC, the oil drilling company that was a 25 percent partner in the rig that caused the Gulf spill, is up 6 percent to 85.5 after Financial Times published a story late yesterday (Anadarko approved key BP well designs), noting that “both Anadarko and BP have confirmed to the FT that the US company was aware of design choices that lawmakers, who have accused the UK company of cutting corners to cut costs, have criticized.”

Unusual volume movers

Monsanto (NYSE:MON) options volume is running 3X the usual, with 20,000 contracts traded and call activity representing about 54 percent of the activity.

AMD (NASDAQ:AMD) options activity is running 2X the usual, with 43,000 contracts traded and call volume representing 94 percent of the volume.

Astrazeneca (NYSE:AZN) options volume is running 16X the usual, with 43,000 traded and put volume representing 94 percent of the activity.

Unusual volume is also being seen in Mastercard (NYSE:MA), XL Capital (NYSE:XL), and Celgene (NASDAQ:CELG).

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