Monday Options Recap

Includes: AABA, INVA, LM, PCP
by: Frederic Ruffy


Stock market averages moved higher, but are off their best levels late-Monday. The table was set for morning gains on Wall Street after EU leaders agreed on a treaty to help stem the deepening European debt crisis. However, a warning from S&P that 17 EU nations are at risk of downgrades knocked the major averages lower Monday afternoon. The domestic economic news also disappointed after the ISM Services Index fell to 52 in November, down from 52.9 the month before and also below expectations of 53.4. A separate report showed Factory Orders down .4 percent in October and in-line with expectations. Beyond that, and SAP’s $3.4 billion bid for Success Factors (NYSE:SFSF), it’s been a relatively slow news day. The Dow Jones Industrial Average is up 45 points, but down 123 points from session highs. The tech-heavy NASDAQ added 22.5. CBOE Volatility Index (.VIX) hit a morning low of 26, but is now up 44 to 27.96. Trading in the options mart is a bit light today, with 6.6 million calls and 5.8 million puts traded across the exchanges so far.

Bullish Flow

Yahoo (YHOO) loses 3 cents to $16.02 and morning trades on the Internet search giant include a 6200-contract block of Dec 18 calls bought for 16 cents per contract and apparently tied to 92K shares at $15.83. Another 6,150 traded for 15 cents against 37K shares at $15.92. Volume in the contract is now approaching 15,000, which makes it the most actively traded equity option during the first 45 min of Monday's session. Shares gained 6.3 percent last week on reports Alibaba (OTC:ALBCF) and Softbank (OTCPK:SFTBF), with help from Blackstone and Bain Capital, were preparing financing to buy Yahoo. Today's call buyers might be taking positions in anticipation of an announcement before the Dec expiration (11 days). However, the activity might also be closing -- as open interest in Dec 18 calls on Yahoo is 42,184

Bearish Flow

Theravance (THRX) loses 6 cents to $23.37 and it looks like a Jan 20 - 30 bearish risk-reversal is initiated on the San Francisco-based biotech for 85 cents, 2000X. 2500 now traded and appears to be opening activity. A shareholder might have initiated the trade to hedge or "collar" the stock after a 17.2 percent rally the week before.

Legg Mason (NYSE:LM) adds 35 cents to $26.62 and one player initiates a Jan 26 - Feb 22 put spread on the firm for 60 cents on ISE. Sentiment data indicate Jan 26 puts were bought and Feb 22 puts sold to open a new diagonal spread. The position is being initiated after the stock moved up from $23.16 on 11/23, or 14.7 percent, and is possibly a bet that shares will fall below $26 (~2.3%) through the Jan expiration (46 days) but not below $22 (~17.4%) through the February expiry (74 days).

Implied volatility Mover

Titanium Metals (TIE) adds 81 cents to $16 and options volume is heating up on the Dallas, TX metals company, with about 17,000 calls and only 360 puts traded on the stock so far. Dec 16 calls, which are at-the-money and have 11 days of life remaining, are the most actives. 6,190 contracts changed hands. Dec 17, Dec 18, Dec 19, and Jan 17.5 calls are seeing interest as well. Upside call buying has lifted implied volatility in the options on the stock up 22 percent to 57.