Tuesday Options Recap

by: Frederic Ruffy


Market action is mixed Tuesday. After a 162-point slide the day before, the Dow Jones Industrial Average opened higher despite a disappointing report on Retail Sales, which rose just .2 and .4 percent less-than-expected. Higher crude oil prices, which are back within striking distance of $100 per barrel, have helped to lift Dow components Exxon and Chevron. Gains in Pfizer (NYSE:PFE), Boeing (NYSE:BA) and Microsoft (NASDAQ:MSFT) also helped lift the industrial average despite persistent worries about problems in the Eurozone. The euro fell midday and is at multi-month lows against the buck after Germany’s Chancellor Merkel threw cold water on the idea of increasing the size of key rescue fund. Attention then turned to the Federal Reserve’s latest FOMC policy statement. As expected, officials left rates unchanged and rehashed concerns about the impact of strains in global financial markets on the economic outlook. The knee-jerk reaction to the text was to sell. With less than 90 minutes remaining to trade, the Dow Jones Industrial Average has trimmed its gain to only 9 points and is 118 points off session highs. The tech-heavy NASDAQ lost 15.3 points.

Bullish Flow

21,000 calls and 1,445 puts traded on the Proshares UltraShort Euro Fund (NYSEARCA:EUO) today. Shares are up 51 cents to $20.10 after the euro lost 1.3 percent and fell to its lowest levels since January on the dollar. The volatility in the European currency has stirred up interest in at-the-money calls on EUO. December, January and February 20 calls are the most actives in the product today. Jan 19, 21 and 22 calls are seeing interest as well. EUO is designed to move 200 percent the inverse to the EUR/USD currency pair and buying calls on the fund equates to make a bearish bet on the Euro.

Wells Fargo (NYSE:WFC) loses 70 cents to $25.59 and a Jan13 27.5 - Jan14 30 call spread trades on the stock at 20 cents, 11000X on ISE. Data indicate an opening spread traded firm-to-firm. The same play also traded at 20 cents, 3000X, on CBOE and a source informs us that the spread was sold (buying Jan13s and selling Jan14s). If so, the action appears to be a bullish spread, or a bet that shares will move beyond $27.5 through January 2013, but not recapture $30 through Jan 2014. The spread has traded 17,200X on the day.

Bearish Flow

Well-timed options trades in Universal Display (NASDAQ:PANL). Shares were just north of $39 this morning and a Mar 35 – 45 bearish risk-reversal was apparently bought-to-open on the stock for 50 cents, 1000X on AMEX. Within minutes, a Jan 35 – 45 bearish combo traded for 52.5 cents, 1000X on PHLX. Shares are down $2.07 to $36.93 and off 5.6 percent since the risk-reversals were initiated at about 10:20. Briefing cites a cautious newsletter mention for the intraday volatility in PANL.

Implied volatility Mover

Ivanhoe Mines (IVN) is under pressure today and options on the stock are actively traded after Rio Tinto won an arbitration process involving the company, but said it has no plans to make a full takeover offer for Ivanhoe. IVN lost 16 percent to $17.39 on the news. Options volume on the Vancouver-based miner is 18,000 calls and 7,100 puts. Interestingly, the top trade is a 2377-lot of Mar 20 calls for $2.15 per contract on ISE, which is an opening buyer, according to data from the exchange. 5,070 now traded. Jan 17.5 puts, Jan 25 calls, Jan 19 calls, Jan 16 puts, Dec 17 puts and Mar 19 calls on IVN are actively traded as well and implied volatility is down 18.5 percent to 83, now that this company event-risk has now passed.