Wednesday Options Recap

by: Frederic Ruffy


The major averages are holding modest gains on a relatively quiet day of trading Wednesday. Economic data was in focus early after ADP reported that the economy added 42,000 jobs in July, which was about 17,000 better than economists had predicted. Meanwhile, a separate report, released 30 minutes into trading, showed the ISM Services Index up to 54.3 in July, from 53.8 in June and stronger than the 53.0 reading that economists had forecast. Beyond that, there hasn’t been a lot of news to drive the market action. After trading in a 75-point range, the Dow Jones Industrial Average is up 40 points. Heading into the final hour, the CBOE Volatility Index (.VIX) slipped .20 to 22.43. Overall options volume is on the light side, with 4.9 million calls and 4 million puts traded so far.

Bullish Flow

Cisco Systems (NASDAQ:CSCO) adds 30 cents to $24.12 and CSCO calls are among the most actives Wednesday (In Flow Monitor, @all and then 4.) The tone of overall trading seems somewhat bullish and includes a sweep of 12,262 Aug 24 calls at the 58-cent ask. Almost 36K now traded. Meanwhile, Aug 23 puts saw two large sweeps, of 10,812 and 9,477 contracts, on the 30-cent bid. Sep and Oct 24 calls are seeing heavy trading as well. Implied volatility has moved up 3.5 percent to 30 ahead of earnings, one week from today.

Western Refining (NYSE:WNR) adds a dime to $5.32 and options volume is 3.5X the average daily, driven by opening call buyers. Dec 7.5s are the most actives. 2100 traded (100 percent Ask). Another 1430 Aug 6 calls traded (100 percent Ask). The action includes a multi-exchange sweep of 2099 Dec 7.5 calls at 20 cents and two sweeps (700 ea) of 1400 Aug 6 calls at a dime — all are opening customer buyers, according to ISEE data. Implied volatility is up 5 percent to 58 ahead of earnings tomorrow, before market.

Bearish Flow

Arena Pharmaceuticals (NASDAQ:ARNA) is flat at $7.29 and didn’t see much reaction to its latest earnings report. The biotech lost 28 cents per share, which was in-line with expectations. In the options market, one player paid $1.90 for Oct 7 – 12.5 risk-reversals, selling calls and buying puts, 5000X this afternoon. It likely closes some opened yesterday, when a strategist collected $1.70 on the bullish risk-reversal, 9000X. Implied volatility remains elevated at 196 and the net loss is 20-cents on the position. But the entire position has not yet been closed.

Implied Volatility Mover

American Express (NYSE:AXP) shares saw a sudden decline on increasing volume about 2:00 PM Eastern time. There were no headlines to explain the sudden drop yet, but the company was due to present at a Semi-Annual Financial Community Meeting at 14:30 ET and there is talk that some information was leaked, possibly guiding down ROE estimates. It hasn’t been confirmed, but shares are under pressure and implied volatility in AXP options is up about 10 percent to 34.5 ahead of the conference. Meanwhile, an interesting trade surfaced as shares sold off, with a multi-exchange sweep of 2200 Aug 40 calls at the $4.45 ask. Looks like a buyer paying nearly $1 mln in premium as AXP shares sank midday.

Unusual Volume Movers

Bullish flow detected in Charles Schwab (NYSE:SCHW), with 5850 calls trading, or 4x the recent avg daily call volume in the name.

Bullish flow detected in Noble (NYSE:NE), with 13149 calls trading, or 3x the recent avg daily call volume in the name.

Bullish flow detected in Allstate Corporation (NYSE:ALL) with 14715 calls trading, or 4x the recent avg daily call volume in the name.

Increasing options action is also being seen in Motorola (MOT), Lennar (NYSE:LEN), and Virgin Media (NASDAQ:VMED).