Tuesday Options Recap

Includes: INTC, TEVA, TRV, WMB
by: Frederic Ruffy


Losses across the eurozone and poor economic data set the table for morning weakness on Wall Street and stock market averages remain under water late-Tuesday. Data released before the opening bell showed personal incomes up .1 percent and spending down .2 percent in June. The income number was in-line, but the drop in spending – the first in 20 months – was well below economist estimates of +.1 percent. Meanwhile, stock benchmarks move broadly lower across the eurozone after rallying bond yields in Spain and Italy rekindled worries about the debt crisis. In the US, debt is also a concern; as politicians struck a last minute deal to avoid default, but Treasurys remain at risk of losing their triple-A credit rating. Consequently, the Dow Jones Industrial Average is down for an 8th consecutive day and now off 155 points. With less than an hour to trade, the NASDAQ is taking a 45-point hit. CBOE Volatility Index (.VIX) eased .27 to 23.39. Yet, trading in the options market remains active and reflects the cautious underlying sentiment. 8.7 million calls and 8.9 million puts traded across the exchanges so far.

Bullish Flow

TEVA, which took a 6.2 percent hit on disappointing FDA trial study results for its MS drug yesterday, is down another $1.15 to $42.61 today. Shares are falling to new 52-week lows and one strategist appears to view the two-day sell-off as an opportunity for a bullish trade. A three-way was recently initiated after an investor sold Dec 35 puts to buy the Dec 45 – 50 call spread, paying 63 cents on the package, 3000X. A similar spread traded in TEVA last week as well.

Intel (NASDAQ:INTC) loses 34 cents to $21.90 and is one of 29 Dow stocks under water today. Only Travelers (NYSE:TRV) is holding a modest gain within the industrial average. The top options trades in the chip maker today are a Sep 21 - 22 strangle at $1.20, 44000X on ISE. The market was $1.19 to $1.22 at the time and ISE data indicate the position was crossed from B/D to B/D. The strangle was also tied to 660K shares at $22.02 and looks opening. A seller might have initiated the trade. If so, it's not necessarily a bullish or bearish play, but a bet that Intel shares will hold in a range between $21 and $22 through the September expiration, which is in 46 days.

Bearish Flow

GM is down 57 cents to $27.50 after the automaker reported a modest 8 percent increase in July auto and truck sales. Data released this morning that showed a .2 percent decline in July personal spending might also be weighing on GM. It marked the first decline in spending in almost two years and economists were expecting the report to show an increase of .1 percent. GM is down and options volume in the automaker is 25000 calls/4750 puts through midday. The top trades are part of a spread, in which the strategist sold Sep 29 calls to buy Sep 31 and 31 calls, collecting 25 cents, 4900X. It's possibly a roll down in strikes. The Sep 29 calls looking opening, but there's sufficient open interest to cover in the 31s and 32s.

Implied volatility Mover

Williams Companies (NYSE:WMB) loses 17 cents to $31.45 and morning trades on the natural gas producer include multi-exchange sweeps of Aug 28 puts at the 25-cent asking price. 14,000 contracts now traded against 46,153 in open interest and ISEE data hint at closing customer buyers. Aug 27 puts and 35 calls on WMB are also seeing interest and implied volatility in the options is moving up 2 percent to 41 ahead of earnings, tomorrow afternoon.