Thursday Options Recap

Includes: AIBYY, C, DNDN, RF
by: Frederic Ruffy


Major averages are broadly higher on optimism for a financial bailout of Ireland and upbeat economic news Thursday. The stage was set for morning gains in the US after major averages moved higher across Europe. The day after Britain pledged aid to Ireland, IMF, EU and Irish officials met Thursday to discuss additional loans to the deeply indebted country. Optimism a deal might be reached sent stocks higher across the Atlantic. Meanwhile, the day’s domestic news included a smaller-than-expected increase in jobless claims (+2000 vs. +5000 consensus) and a surprise jump in November manufacturing activity reflected in the Philly Fed Survey (+22.5 vs. +5 consensus). The Dow Jones Industrial Average rallied at the open and has been trading mostly sideways from that point forward. The Dow is up 180 points heading into the final hour. The NASDAQ added 45. The CBOE Volatility Index (.VIX) lost 2.85 to 18.91. Trading in the options market is running about the typical levels, with 8.2 million calls and 6 million puts traded so far.

Bullish Flow

Allied Irish Bank (AIB) adds 9 cents to $1.17 and 2,600 calls traded in the name, as the IMF, EU, and Irish officials meet today to iron out plans to help Ireland pay its debt. Yesterday, Britain, which has a large stake in Irish debt, pledged aid to the country as well. Optimism that Ireland will agree to take loans helped to lift markets across Europe and set a positive tone for trading in the US. Meanwhile, in AIB, December 1.5 calls are the most actives. 1010 traded at the ask vs. 572 in open interest. Feb 1 and May 1.5 calls are seeing interest as well. Implied volatility in AIB remains elevated, around 160 percent.

The top equity options trades so far today are in Citi (NYSE:C): Three blocks (20000 each) of Dec 4.5 calls at 8 cents on the ISE at 10:21. Sentiment data indicate an opening customer buyer. During that time, more than 90K calls were bought-to-open in Citi on the ISE. Shares have added 13 cents to $4.32.

Bearish Flow

High volume in Regions Financial (NYSE:RF) for a second day. Like yesterday (see 11/17 color), the action is on the put side of the options chain, with 27,000 traded so far (vs. 7800 calls). Shares are off 18 cents to $5.36 and the action is concentrated in the Dec 5, Jan 4, Jan 5, and Feb 4 puts. Implied volatility is up another 10 percent to 79 and has skyrocketed 68 percent since MarketWatch reported Tuesday that three of the bank’s risk managers are leaving the company.

Implied Volatility Mover

Dendreon (NASDAQ:DNDN) is up $2.50 to $38.37 and implied volatility falling after a MEDCAC panel voted by an average of 3.6 that Provenge extends survival. Anything over 3 is viewed as a win for DNDN, according to Brean Murray analysts. Implied volatility is down about 34 percent to 45 now that the overhang is gone. Meanwhile, 34000 calls and 21000 puts traded in the name. The action is scattered across a number of different expirations and strikes. The top trade is a Dec 35 - 39 strangle bought at $2.05, 3000X on CBOE. It might be a closing trade.

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