Tuesday Options Recap

by: Frederic Ruffy


A mini-wave of contagion swept through global equity markets, beginning with a 2.2 percent loss in Hong Kong, followed by steep losses in Europe. Germany's DAX and France's CAC 40 both fell more than 3 percent. Equity markets are under pressure worldwide amid concerns about the global economy. Some of the worries were triggered yesterday following disappointing economic news from China, the world's second largest economy, as well as poor PMI readings in Spain and Italy. Today, uncertainty about Super Tuesday results in the Republican race, Friday's jobs-jitters, and worries about tensions with Iran are possibly factors as well. The main fear is related to Greece, however, and the deadline for Public Sector Involvement [PSI]. Creditors must agree to eat big losses on Greek debt for the country to receive a second round of bailouts and avert a messy default. The deal is far from done and investor risk perceptions are moving higher as the deadline looms. The Dow Jones Industrial Average is down 214 points and the tech-heavy NASDAQ lost 44 points. CBOE Volatility Index (.VIX) gained 3.08 to 21.13 and is near session highs. Trading in the options market is very busy today. With less than an hour to trade, 8.8 million calls and 8.1 million puts have changed hands.

Bullish Flow

Harvest Natural Resources (NYSE:HNR) gaps higher today and is trading up $1.55 to $7.81 after the company said it’s in talks to sell a 32 percent stake in Petrodelta SA. The stock, which had been mired in a slump for months and is down 55.3 percent from a year ago, is up today on heavy volume of 3.6 million shares. By way of comparison, typical volume is about 300,000. Meanwhile, 5,645 calls and 950 puts traded on the Houston, TX oil and gas company, which is 11X the daily average. June 7.5 and 10 calls are the most actives and have traded in small lots. The top trade is 180 Jun 10 calls for 50 cents when the market was 45 to 50 cents. Meanwhile, implied volatility is moving up with the underlying. IV in HNR options is up 9.5 percent to 81 on the day.

Bearish Flow

For a second day, a handful of the sector ETFs saw large opening buyers electronically on ISE this morning. As we noted shortly after the opening bell Monday, large blocks of June puts were bought-to-open on the SPDR Industrials (NYSEARCA:XLI) and SPDR Basic Materials ETFs (NYSEARCA:XLB) early-yesterday. The focus shifted to April contracts Tuesday morning. SPDR Oil and Production ETF (NYSEARCA:XOP) slid $1.19 to $57.05 and 35,981 April 50 puts traded on the ETF for 81 cents per contract. SPDR Metals and Mining ETF (NYSEARCA:XME) is off $1.59 to $48.37 and 31,292 April 43 puts traded for $1.05 apiece. SPDR Basic Materials is off 74 cents to $35.95 and 30,852 April 35 puts traded for 92 cents each. These three hefty premium purchases are opening buyers, according to data from the ISE. The bearish action in these economically-sensitive groups comes the day after China lowered its economic growth forecast. Meanwhile, Greece is still hoping to avert a messy default with key results from Private Sector Involvement (NYSEARCA:PSI) due Thursday. Pre-jobs data jitters might be a factor as well. ADP releases numbers tomorrow before the Labor Dept’s report Friday morning.

Implied volatility Movers

Volatility continues in the coal names, but morning losses have been pared and some are now well off session lows. Alpha Natural Resources (ANR), which was the subject of increasing action yesterday, hit a morning low of $15.52, but is now up 3 cents to $16.38 and not far from its Oct 3 52-week low of $16.03. Options on the stock are actively traded, with 24K calls and 10K puts traded in the name so far. Weekly 17, Weekly 18, and Mar 17 calls are the most actives and implied vols in ANR options are up 15 percent to 65, as some investors appear to be calling a bottom in ANR after an 11-month 73.5 percent plunge in the shares.

Other names seeing higher volatility today include PCX, which fell to new 52-week lows early, but has since erased the losses and is up 14 cents to $6.50. Nevertheless, IV in Patriot Coal options is up 8 percent to 70. JRCC, CNX, and BTU also touched new 52-week lows amid higher levels of implied volatility today. There seems to be high anxiety in the space, but also signs of bottom-fishing, after a five-day 7.9 percent losing skid in the Market Vectors Coal ETF (NYSEARCA:KOL). The fund is down 36.9 percent from the highs seen 11 months ago.

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