Tuesday Options Recap

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Includes: LEU, SHAW, SPRD, VLO
by: Frederic Ruffy

Sentiment

Stock market averages are broadly higher on hopes Greek finance ministers will soon adopt unpopular austerity measures. Despite violent protests and civil unrest in Athens, the euro is up .5 percent against the dollar and European stock benchmarks closed with gains on hopes Greece will take the necessary steps to avoid debt default. The positive tone of trading across the Atlantic set the table for a higher open on Wall Street. The domestic economic news was mixed. While the S&P/Case Shiller Index showed home prices in US cities rising for the first time in 8 months, the Conference Board said its index of Consumer Confidence fell to 58.5 last month, down from 60.8 the month before and well below the 62.0 that was expected. The data were largely ignored, however, and stock market averages were in positive territory at midday. The gains are holding into the final hour. The Dow Jones Industrial Average is up 136 points and the tech-heavy NASDAQ has added 36.5. CBOE Volatility Index (.VIX) lost 1.09 to 19.47. Trading in the options market is running about the typical pace, with 6.6 million calls and 5.7 million puts traded across the US exchanges so far.

Bullish Flow

39,000 calls and 2,525 puts traded in Valero (NYSE:VLO) today. Shares of the oil refiner are up 98 cents to $24.68 and the top trade is a Sep 26 - 27 call spread, bought at 32 cents, 13000X. A similar spread traded a week ago when the Sep 27 - 28 call spread on VLO was bought at 29 cents, 13000X. Open interest data indicate that the position was a roll down in strikes. Today's trade looks the same -- i.e. closing out Sep 27s to open a new bullish position in the Sep 26s. The stock is up today, but has not performed well in the past couple of months and is off 20.7 percent from the 52-week highs seen in early-April. Today's spread trader is probably moving a position down in strikes and to call options that have a lower probability of expiring worthless. The Sep 26 calls on VLO are currently 5.3 percent out-of-the-money.

Shaw Group (NYSE:SHAW), a Baton Rouge, LA heavy construction company, is up 62 cents to $32.22 and Jul 34 calls are busy today. The action includes a multi-exchange sweep of 1,200 at the 57-cent asking price. 3,012 traded (85 percent Ask) against 3,084 in open interest. Jul 32 and 33 calls are seeing interest as well. Total volume in SHAW is 4,535 calls and 570 puts. Meanwhile, implied volatility is up 6 percent to 40 ahead of earnings, due after the close of trading today.

Bearish Flow

USEC (USU) shares touched new 52-week lows of $2.97, but then finished up a penny to $3.09 yesterday. Options action in the Bethesda, MA uranium company was noteworthy, as 19,000 calls and 715 puts traded in USU. The top trade was an Oct 4 – 5 call spread sold at 11 cents, 6300X. Open interest data indicate a new position and so probably a bet that shares won’t rally beyond $4 through the October expiration. Shares are up 9 cents to $3.18 Tuesday morning.

Implied volatility Mover

Spreadtrum Communications (NASDAQ:SPRD) is down 25.6 percent to $9.64 and a big mover today. Volatility in shares of the Shanghai, broadline semiconductor company is being attributed to a negative report from Muddy Waters Research. SPRD options are seeing heavy trading as well. 12,000 calls and 36,000 puts so far. July puts with strike prices ranging from 5 to 17 are seeing heavy trading. Shares had already trended lower before today and had suffered a 43.2 percent decline during the past month. Meanwhile, Muddy Waters is becoming well known for its critical commentary on China-based firms. SPRD, which makes processors for wireless handsets, is apparently the firm’s latest target. Meanwhile, implied volatility in SPRD options is down 14 percent, but remains elevated at 172.5.