Monday Options Recap

Includes: NLY, SPY, TLB
by: Frederic Ruffy


Stock market averages have traded in a wide range and are sporting modest losses late-Monday. The table was set for morning gains on Wall Street after lawmakers agreed on a budget plan compromise Sunday. Yet the enthusiasm had faded mid-morning Monday after ISM said its index of manufacturing activity fell to only 50.9 in July, down from 55.3 in June and well below economists’ estimates of 54. The reality that the economy is slowing while the government has plans to slash $2.4 trillion in government spending over the next ten years seems to be causing some concerns about the longer-term outlook for corporate profits and share prices. Crude oil is also lower, down 55 cents to $95.15 per barrel and gold lost $7.6 to $1,620.7 on dollar strength. The euro lost .9 percent on the buck. Anxiety about a potential downgrade to the US triple-A credit rating is a factor as well. However, the ten-year Treasury is rallying again today and its yield has slipped below 2.8 percent. There doesn’t seem to be much fear about holding government debt today. Meanwhile, the Dow Jones Industrial Average is down 40 points and 178 points off session highs (up 104 points from its worse levels). With forty-five minutes left to trade, the NASDAQ has given up 22. CBOE Volatility Index (.VIX) lost 1.88 to 23.37. Trading in the options market is active Monday, with 7.7 million calls and 8.2 million puts traded so far.

Bullish Flow

Talbot’s (NYSE:TLB) adds 43 cents to $3.90 and options volume is 5X the average daily, being driven by upside call buyers in the Jan 5s. 2,495 traded against 1,070 in open interest. The action includes a multi-exchange sweep of 1057 at 33 cents when the market was 32 to 33 cents. 80 percent of the volume has been at the ask. Aug 4 and Nov 5 calls on TLB are seeing interest as well. Shares are up and calls are active today after Sycamore Partners disclosed a 9.3 percent stake in the retailer.

Bearish Flow

Big Prints in the SPYders (NYSEARCA:SPY), which are down $1.27 to $128.06 and put volume is outpacing call volume by a ratio of two-to-one (1.95 million puts/950K calls). The top trades are part of a four-way spread, in which the strategist sold SPY Aug 121 – 131 put spread to buy Aug 115 – 125 put spread, collecting $1.89, 30000X. Open interest is sufficient in all four legs, but this is possibly a roll of a bearish spread down in strikes after a six-day 4.9 percent slide in the spiders. Shares are not far from session lows and now testing an 200-day exponential moving average.

Implied volatility Mover

Annaly Capital (NYSE:NLY) adds 48 cents to $17.27 and implied volatility is easing today. Shares have rebounded sharply from the lows of $14.05 seen Friday morning when fears about US debt default sent the mortgage REIT plummeting in volatile trading (see 7/29 color on HTS and NLY). Options in Annaly remain heavily traded again today. 13K calls and 16K puts so far, which is 3X typical volume for the first hour of trading. The top trade is a 2,055-contract block of Aug 18 calls at the 14-cent asking price. Aug 16 puts are the most actives, with three blocks totaling 5,000 traded mid-market at 12 cents just before 10:00 on AMEX. It might be a liquidating trade, as open interest is 10,475 and implied volatility in NLY is down 28 percent to 27 now that a debt deal has been struck.

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