Wednesday Options Recap

by: Frederic Ruffy


Stocks rallied Wednesday, as investors shrugged off bearish jobs data and focused on gains in overseas along with strong domestic manufacturing numbers instead. The unemployment situation was in focus early after ADP reported that the US economy lost 10,000 private sector jobs in August. Economists were looking for an increase of 37,000. Investors brushed aside the weak report and seemed to focus more on gains in overseas markets, which were partly fueled by strong data in Australia and China. Meanwhile, in the US, the latest ISM Manufacturing Index, which showed improvement to 56.3 in August, from 55.5 in July, also helped equities higher. The Dow Jones Industrial Average rallied on the data and is up 228 points. The NASDAQ gained 57. With 40 minutes left to trade, the CBOE Volatility Index (.VIX) is down 1.69 to 24.36. Options volume is picking up, with about 6.4 million calls and 5.1 million puts traded so far.

Bullish Flow

It’s been one Whopper of a day for Burger King (BKC-OLD) shareholders. The stock gapped higher, near $19 at the open, on reports the fast food chain is considering putting itself up for sale. However, the early gains faded amid talk 3I Group, the interested party, denied it was in talks with BKC. Shares dropped to $17.13 mid-morning and about 10 percent from session highs. However, the WSJ then released a story suggesting that 3G is in talks with Burger King. CNBC also out saying that it might be 3G, not 3I Group (OTCPK:TGOPF) interested in BKC (very confusing — bottom line is: original speculation about 3I Group was incorrect. It should have been 3G and yet still, it’s not confirmed).

Shares rallied back beyond $19 and are up $2.45 to $18.90. Meanwhile, options volume is 7X the average daily, with speculative call buying driving a lot of action in Sep and Oct 20 calls. Looks like two-way flow in Sep 19 puts and calls. Some traders are likely liquidating positions as BKC saw a flurry of activity on 8/25 and 8/26 (see 8/26 color). Implied volatility is up 23 percent to 53.

Bearish Flow

BB&T (NYSE:BBT) adds 66 cents to $22.78 and options volume is 2.2X the average daily, being led by an Oct 22 – 23 strangle at $1.69, bought 5000X and apparently a new position (tied to shares at $22.86, delta neutral). This strangle (buying puts and calls) isn’t necessarily a bearish trade, but seems to reflect expectations for higher volatility in the weeks ahead. Implied volatility in the regional bank is down 5.5 percent to 34, compared to a 52-week high and low of 51 and 26.

Implied Volatility Mover

From Steve Smith: Brocade Communications (NASDAQ:BRCD) shares are adding another 25c to $5.25 and option volume is 4x the daily average, with 88,000 calls to 8.860 puts. This is the second consecutive day of active trading (see market color 8/31) and again the trade is being prompted by unconfirmed takeover speculation, with IBM and HPQ being mentioned as possible interested parties. The most active strikes are the April and Oct $6 calls, with more than 17,000 traded in each. But the volume is being done mostly small transactions with two-sided trading driving a lot of today’s volume. Implied volatility is up 9.5 percent to 46.