Wednesday Options Recap

Includes: AABA, CA, CHBT, KBH, PFE
by: Frederic Ruffy


Major averages are holding modest gains on better-than-expected housing data and benign comments from Federal Reserve officials. Data released Wednesday morning showed New Home Sales improving to an annual rate of 329,000 in December. Earnings remain in focus as well. Boeing (NYSE:BA) lost 2.9 percent and is the biggest loser in the Dow Jones Industrial Average after its results fell short of expectations. Yahoo (YHOO) and Computer Associates (NASDAQ:CA) are also trading lower on earnings. Yet, both the Dow Jones Industrial Average and the NASDAQ are heading to session highs in the final hour after Federal Reserve officials concluded their latest policy meeting. As expected, the FOMC voted to leave rates unchanged and also pledged to keep rates low for an extended period of time. Eighteen of the Dow thirty are above water and the industrial average has added 28 points. The tech-heavy NASDAQ added 24. The CBOE Volatility Index (.VIX) lost .91 to 16.68. Options volume includes 7.5 million calls and 6.2 million puts.

Bullish Flow

KB Homes (NYSE:KBH) adds 67 cents to $15.92 on a good day for the builders after data showed New Home Sales up to an annual rate of 329K in December, from 280K the month before and better than the 300K that economists had predicted. One investor seized the strength in KBH to sell 9,500 Mar 16 calls at 92 cents each. 11,104 now traded vs. 112 in open interest. A shareholder might have an initiated the trade as part of a buy-write/covered call. Or, it might be a straight bet that KBH won’t capture $16 by the March expiration. 16,000 calls and 3,430 puts now traded in the builder. Implied volatility is steady around 44. Earnings were reported on 1/7. Shares are up 10 percent since that time.

Pfizer (NYSE:PFE) loses 2 cents to $18.45 and PFE Mar 20 call is today's most actively traded equity options contract. Today's 88,283 contracts includes a buyer of 50,000 at 8 cents each. Open interest is 14,847 and therefore the call purchase looks like fresh positioning in the pharmaceutical giant. Shares have performed well lately, up 13.2 percent since November, but have not traded north of $20 since a brief stint one year ago. Earnings will come into play Feb 1 (before market).

Bearish Flow

Big Print in the S&P 500 pit Wednesday morning after the SPX Feb 1360 – 1370 call spread trades at 25 cents, 21225X. 30,000 total. SPX is up 6.45 to 1,297.63 and this spread, which was sold, is only 25 cents because it is more than 60 points out-of-the-money with 22 days left till expiration. In this strategy, the investor is pocketing a small amount of premium, but it taking on relatively higher risk (1370 minus 1360 per spread), but is betting that the probabilities will be on their side. That is, it’s not very probable that the SPX will rally beyond 1,360 through the February expiration, but it is certainly not impossible.

Implied Volatility Mover

China-Biotics (OTC:CHBT), which was slammed for a 20 percent loss Friday, is off another 61 cents to $14.87. Shares are reeling today after a story on Seeking Alpha indicated that the Shanghai-based pharmaceutical maker might have inflated revenue numbers. Shares are down and options volume includes 13,000 puts and 3,000 calls. Feb 10, 12.,5 and 15 puts are the most actives. Mar 10 puts are seeing interest as well. Implied volatility is up 2 percent to 107, but off the levels seen Friday when it spiked to 175.