Monday Options Recap

by: Frederic Ruffy

Stocks are broadly higher late Monday. With no economic data or earnings to guide the morning action, the early focus was on the financials after regulators met over the weekend in Basel, Switzerland, to discuss capital ratios. Officials decided banks should increase capital over the next eight years or so and that was not as strict as some market watchers had feared. Consequently, a relief rally lifted the banks. JP Morgan (NYSE:JPM) and BofA (NYSE:BAC) are both up more than 3 percent and leading the Dow Jones Industrial Average. Merger news, after Dollar Thrifty (NYSE:DTG) agreed to a $50 per share offer from Hertz and after Oracle (NYSE:ORCL) made a bid for ArcSight (ARST), also seemed to set a positive tone for early trading. Finally, stronger-than-expected economic data in China helped lift sentiment on Wall Street as well. However, after the initial run higher, trading quickly stalled early morning and market action has been sideways. The Dow Jones Industrial Average is up 57 points in the final hour. CBOE Volatility Index (.VIX) is off .40 to 21.59 ahead of retail sales data Tuesday morning. Trading in the options market is brisk heading into September Quadruple Witch expiration at the end of the week. Approximately 6.6 million calls and 5 million puts traded so far.

Bullish Flow

JP Morgan (JPM) adds $1.38 to $41.14, as the financials rally around news regulators have agreed to phase in stricter capital requirements over a longer-than-expected time horizon. Regulators discussed the plans over the weekend in Basel, Switzerland and said the new restraints will be phased in over more than eight years. A relief rally ensued and JP Morgan is the best gainer in the Dow Jones Industrial Average through midday Monday. Meanwhile, 107K calls and 26K puts traded on the bank. The top trade is a block of 20K Dec 45 calls bought-to-open at $1 and tied to 560K shares at $41.24. Meanwhile, implied volatility in JPM is up about 3 percent to 31.5, compared to a 52-week high and low of 56 and 24.

Bearish Flow

Allstate (NYSE:ALL) shares are up 24 cents to $30.11 and one strategist sells the Jan 33 - 36 call spread at 53 cents, 37000X. Open interest data suggests a possible roll down in strikes, or buying back the Jan 36 calls to close, while selling-to-open a new position in the Jan 33 calls. If so, it might be a shareholder writing calls against a position in ALL.

Implied Volatility Mover

TiVo (NASDAQ:TIVO) saw a spike to $10.29 and was recently up 60 cents to $9.10 after the SEC granted a requested confidential treatment with respect to two exhibits in its 10-Q filing, which seems to have raised hopes for a settlement with DirecTV (NYSE:DTV), according to Fly on the Wall. Shares rallied and about 26K calls traded in the name, which is 12X the typical volume and compares to 720 puts. Sep 9, 10, and 11 call options are the most actives, with some players apparently hoping for additional upside in TIVO before the expiration at the end of this week. Implied volatility is up about 21 percent to 73.

Unusual Volume Movers

Bearish activity detected in Altera (NASDAQ:ALTR), with 13973 puts trading, or 2x the recent avg daily put volume in the name.

Bullish flow detected in Red Hat (NYSE:RHT), with 5425 calls trading, or 2x the recent avg daily call volume in the name.

Bullish flow detected in Xerox (NYSE:XRX), with 11170 calls trading, or 4x the recent avg daily call volume in the name.

Increasing options volume is also being seen in EMC, Aetna (NYSE:AET), and Chubb (NYSE:CB).