Friday Options Recap

by: Frederic Ruffy

Market action remains mixed and rangebound Friday. Economic data drove some of the morning trading after the University of Michigan said its index of consumer sentiment improved to 75.3 in late February, from 72.5 earlier this month and better than the 72.5 that was expected. A separate report showed New Home Sales at an annual rate of 321K in Jan, from 324K last month, but slightly better than the 315K that was expected. Trading was orderly across the eurozone and the euro is making another stab at the 1.35 level against the buck. EUR/USD currency pair is now at 1.3475, from less than 1.30 a little more than a week ago. Meanwhile, crude oil is making a run towards $110 per barrel and was recently up $1.75, to $109.58. The move in crude seems to have stirred up little anxiety on Wall Street thus far. The Dow Jones Industrial Average has traded in another narrow 63-point range and is down just 15 points. The Nasdaq has added 6 points. CBOE Volatility Index (.VIX) hit a low of 16.42, but is up 65 points to 17.45. Put volume is outpacing call volume across the exchanges for only the second time this year. 7.1 million puts and 7 million calls traded so far.

Bullish Flow

Marvell Tech (NASDAQ:MRVL) loses 58 cents to $15.47 on earnings news and one strategist apparently sees the weakness as an opportunity — 5000 Jan 12.5 puts were sold on the chipmaker at $1 to buy 5,000 Jan 17.5 – 22.5 call spreads for $1.05. The three-way traded on ISE, where data confirm puts were sold to buy the call spread, to open. Separately, Mar 16 calls on the stock are seeing active trading. Volume is approaching 10,000, but the action has been in smaller lots. The top trade is 375 for 46 cents when the market was 43 to 48 cents. It’s possible that closing action is driving the flow, as open interest in the Mar 16s is 15,811 and the 2nd biggest position in MRVL behind Mar 17 calls (which have 18,774 in OI). Meanwhile, post-earnings crush is sending levels of implied volatility in MRVL options down 21 percent to 31.5.

Chelsea Therapeutics (NASDAQ:CHTP) is up $1.38 to $3.79 and a Mar 4 – 6 call spread trades on the stock at 25 cents, 10000X, after the FDA recommended the company's Northera, which is expected to get a final FDA okay on 3/28. The call spread might exit a position opened for 37.5 cents three days ago. Although the stock is up on the news, It has failed to break above $4. In addition, implied vols are getting crushed, to 138 from 308 two days ago, and the call spread is being closed at a loss.

Bearish Flow

Live Nation (NYSE:LYV) loses 76 cents to $9.74 on disappointing earnings and one strategist sells 11,000 April 10 puts on the stock for 90 cents to buy 20,000 Mar 7 puts for 17.5 cents. The spread appears to roll a position opened 11 days ago when bears were circling LYV and 12,000 April 10 puts traded in smaller lots for 60 and 70 cents. Shares are down 9.5 percent since that time and, while the in-the-money Apr 10s are being closed for a profit, the strategist is opening a new larger position in deeper out-of-the-money Mar 7.5 puts. The activity seems to express the view that the weakness in LYV will continue through the March expiration, which is three weeks from today. Yet, implied volatility is down 9.5 percent to 50.5 now that the earnings event-risk has passed.

Update: Big block of March 7.5 puts in Live Nation (LYV) was canceled and a block of 20,000 Apr 7.5 puts went up for 20 cents per contract instead. So, the flow appears to be a roll down in strikes within the same expiration month.

Implied Volatility Mover

Iron Mountain (NYSE:IRM), which lost 1.85 percent on earnings news yesterday, has made up the loss, and more, in active trading today. IRM is up 91 cents to $31.16 on volume of 2.1 million shares, which is almost 3X the typical volume for the Boston, Mass. business software developer. Meanwhile, options action includes 7125 calls and 435 puts. By way of comparison, typical volume (puts and calls) is about 200 contracts. July 32.5 calls are the most actives. 2,965 traded (91 percent Ask) against 42 in open interest. Looks like opening buyers of July 30 calls as well and levels of implied volatility in IRM options almost 30 percent to 26. No news on the stock today, but the flow seems to reflect expectations for additional gains in the stock through mid-July.

Unusual Volume Movers

Bullish flow detected in Cavium (NASDAQ:CAVM), with 4301 calls trading, or 2x the recent average daily call volume in the name.

Bullish flow detected in Rockwell Collins (NYSE:COL), with 2285 calls trading, or 39x the recent average daily call volume in the name.

Bearish activity detected in James River Coal (JRCC), with 7266 puts trading, or 8x the recent average daily put volume in the name.

Meanwhile, high options volume is being seen in US Oil Fund (NYSEARCA:USO), Vivus Pharmaceuticals (NASDAQ:VVUS), and (NYSE:CRM).