Wednesday Options Recap

by: Frederic Ruffy


Stocks are broadly higher with help from upbeat earnings news from State Street (NYSE:STT). With no economic news to drive trading and very little stock news, investors focused on State Street’s positive second quarter earnings pre-announcement because the reporting season unofficially kicks off with a report from Dow component Alcoa (NYSE:AA) next week. In addition to financials, industrial, technology, and commodity-related names are seeing relative strength as well. But all thirty Dow stocks are higher and the industrial average is up 185 points heading into the final hour. The CBOE Volatility Index (.VIX) lost 2.17 to 27.48. Trading in the options market is on the light side, with 5.3 million puts and 4.8 million calls have traded across the eight options exchanges so far.

Bullish Flow

Mosaic (NYSE:MOS) is battling back from a brutal four-month 39 percent slide and is up $2.79 to $41.92 midday Wednesday. Options volume is 2.3X the average daily, with 25K contracts traded. A noteworthy spread this morning is a December 45 – 55 call spread at $2.14, 1500X on ISE, which looks like an opening buyer. It’s traded more than 5000X and offers a potential payoff of $7.86 (excluding commissions) if shares rally to $55 (31.2 percent) or more by the December expiration (163 days.)

Bearish Flow

Looks like some players are bracing for possible volatility in GE (NYSE:GE). One player bought 10K Sep 14 puts at 89 cents each on AMEX this morning. It was tied to shares at $14, according to a source on the floor. Another sweep buyer opened a new position in 6638 Jul 15 calls at 10 cents each. 10K now traded. Implied volatility is down about 4 percent this morning, to 39, compared to a 52-week high and low of 55 and 23. Earnings due out July 16 (the day before expiration.)

Implied Volatility Movers

Madison Square Garden (NASDAQ:MSG) shares are up 26 cents to $20.53 and options are active ahead of an announcement from All-Star LeBron James due out Thursday evening. King James is expected to make a decision and potentially head to the New York Knicks. (Although recent media reports indicate that “it’s down to Cleveland or Miami for him”- Yahoo Sports.) In the options market, players appear to be bracing for volatility ahead of the news. The Jul 20 – 22.5 strangle was apparently bought at $1.10, 2000X. July 22.5 calls are the most actives, with almost 5000 traded and morning buyers paying 50 and 60 cents to open new positions on ISE. Meanwhile, implied volatility rallied 13.5 percent to 59.

Unusual Volume Movers

Vivus Pharmaceuticals (NASDAQ:VVUS) options volume is running 3X the average daily, with 50,000 contracts traded and call volume representing 84 percent of the total volume.

AK Steel (NYSE:AKS) options volume is 3X the recent average levels, with 39,000 contracts traded and call volume accounting for 87 percent of the volume.

SunTrust (NYSE:STI) options volume is 5.5X the average daily, with 37,000 traded and call volume representing 85 percent of the activity.

Unusual volume is also being seen in Mosaic (MOS), KB Homes (NYSE:KBH), and Disney (NYSE:DIS).