Monday Options Recap

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Includes: CAT, F, GSK, RINO
by: Frederic Ruffy

Sentiment

Major averages are holding gains following a round of mixed economic news Monday. The table was set for steady trading early after a report on Retail Sales showed an increase of 1.2 percent in October, which was much better than the .7 percent that economists had expected. While the Empire State Manufacturing Index for November showed a surprise drop of –11.17 (vs. +11 consensus), the latest report on business inventories for September was at .9 percent and in-line with expectations. Meanwhile, Caterpillar (NYSE:CAT) is up 1.8 percent and leading the Dow Jones Industrial Average after announcing plans to buy mining equipment maker Bucyrus International. But, overall, trading has been relatively uneventful. The Dow is up 50 points heading into the final hour. The NASDAQ is up 5.5. The CBOE Volatility Index (.VIX) lost 1.16 to 19.45. Trading is a bit lighter than in recent days, with about 6.4 million calls and 4 million puts traded so far.

Bullish Flow

Ford Motor (NYSE:F) touches a new 52-week high and is up 48 cents to $16.78 in morning trading Monday after the automaker reported that its Super Duty has taken 50 percent of the heavy-duty truck market. Meanwhile, Jim Cramer said on Mad Money that GM's IPO later this week is good for Ford. The TV host explains that, what's good for GM is good for Ford and he likes Ford over GM. Meanwhile, options action is picking up again in the automaker. The top trades are part of a bearish risk reversal, as one investor sold 9000 Nov 17 calls at 34 cents to buy 4000 Nov 16 puts at 17 cents, which might be a closing trade. Nov 18 calls, Dec 17 calls, Dec 20 calls, Jan 15 puts, and Jan 15 calls are seeing brisk trading as well.

Bearish Flow

The onslaught continues for OTC:RINO. Shares touched a new 52-week low and are down $2.74 to $8.27. Shares have now suffered a 46.7 percent slide since Muddy Waters Research accused the company of cooking its books last week. Shares are under pressure today after the company reported weak third quarter results and lowered its full year earnings forecast. Implied volatility remains elevated around 160, as the uncertainty weighs. Meanwhile, RINO puts remain actively traded. Jan 5, Jan12 5, Nov 9, Dec 5, and Jan 5s are the most actives.

Implied Volatility Mover

Human Genome Sciences (HGSI) will see brisk trading ahead of tomorrow’s FDA panel review for the company’s Benlysta lupus drug. Trading has been volatile in shares in the days leading up to the news. HGSI rallied 8.8 percent Thursday, before falling 12 percent Friday, and is up $1.20 to $24.80 Monday morning. We’re seeing increasing action in some of the deep out-of-the-money contracts, like a recent block of 4800 Jan 30 calls and a block of 1500 November 15 puts. The panel review has important implications for the FDA’s final decision regarding the treatment's approval, slated for December 9. For that reason, implied volatility in the front-month ATMs is reaching beyond 300 percent ahead of the news.