Tuesday Options Recap

by: Frederic Ruffy


Stock market averages are under pressure in the final hour of trading Tuesday. The underlying tone of trading had improved early after a report on monthly retail sales showed an uptick of .1% for April, which was a bit less than the .1% that was expected. The Consumer Price Index was unchanged last month and in-line with expectations. However, a third report showed the NY Empire State Index of manufacturing activity up to 17.1 in May, which was up sharply from 6.6 in April and also much better than the 8.4 that was expected. The NAHB Homebuilder Sentiment Index also surprised after increasing four points in May to 29 and five-year highs. Economists were expecting 26. Stocks were mixed on the data heading into midday, but then another round of selling surfaced amid ongoing concerns about the political impasse in Greece and the debt crisis across the Eurozone. Spain’s IBEX lost 1.6% and Italy’s MIB slid 2.6%. The euro is down .7% to 1.273 on the buck. Crude oil is off $1.30 to $93.48 and gold lost $10 to $1551 an ounce. The Dow Jones Industrial Average is down 66 points and the Nasdaq lost 8. CBOE Volatility Index (.VIX) hit a low of 20.76, but is now up .67 to 22.54 mid cautious trading in the options market. 7.2 million calls and 7.7 million puts traded across the exchanges so far.

Bullish Flow

Pandora's (NYSE:P) rally continues. Shares are up 94 cents to $10.76 in active trading of 3.7 million shares and now up 24.6% in just six trading days. Options on the Internet radio operator are busy for a second day. Like yesterday (see 5/14 color), call buyers seem to be dominating the flow. 22,000 calls and 2,360 puts traded on the stock so far. Jun 9, 10, 11 and 12 calls are busy. May 9 and 11 calls are seeing action as well. 30-day ATM implied vols are up 2% to 88 ahead of a May 23 earnings report. Short interest is probably behind some of the call buying in Pandora. As of April 30, short interest as percent of float was almost 30%. Prior to the six-day advance, the stock had suffered a two-month 40% slide.

Hefty print in Morgan Stanley (NYSE:MS) after 53,000 October 17 calls were bought on the stock for 83 cents per contract, to open. MS is off 6 cents to $14.24 and the 53k call options are tied to 1.83 million shares at $14.29. The premium purchase comes as shares continue to slide below the multi-month highs set in late-March. MS is down 32.7% since 3/26. Oct 17 calls on the investment bank are now 19.4% OTM with a .33 delta and 2,289 in open interest. Today's purchase will create one of the largest blocks of OI in the name, ranking it fourth behind May 16 puts, June 19 calls, and Jun 16 puts. It seems to express confidence that the stock can rebound to more than $17 by mid-October.

Bearish Flow

Kohl's (NYSE:KSS) is off 19 cents to $47.07 and on a four-day 7.5% losing skid since earnings were reported on May 10. Midday options trades on the retailer include a multi-exchange sweep of 3,691 May 46 puts at the 25-cent asking price. 6,106 contracts and ISEE is hinting at opening customer buyers. May 47 and Oct 44 puts are also seeing interest and 30-day ATM vols are up 2% to 27.5. Bearish trading in KSS might be a play on Nordstrom's (NYSE:JWN) earnings, due out after the closing bell, and Target's (NYSE:TGT) profit report, which is slated for Wednesday morning.

Implied Volatility Mover

Renren (NYSE:RENN) adds 51 cents to $6 in active trading of 10.8 million shares after the Chinese Internet company reported earnings and revenues that topped Street estimates. Options on the stock are actively traded as well, with 17,000 calls and 4,790 puts so far. Some investors seem to be anticipating additional gains in shares before the weekend, as the May at-the-money $6 calls are the most actives. 6,510 traded (71% Ask). May 7 and Jun 6 are the next most actives and 30-day ATM implied vols have eased 24%, but remain elevated near 100. The stock had suffered a one-month 25% loss prior to the earnings release.

Unusual Volume Movers

Bearish activity detected in Joy Global (NYSE:JOY), with 15,786 puts trading, or 4x the recent average daily put volume in the name.

Bearish activity detected in AK Steel (NYSE:AKS), with 5,893 puts trading, or 4x the recent average daily put volume in the name.

Bearish activity detected in International Game Technology (NYSE:IGT), with 8,151 puts trading, or 7x the recent average daily put volume in the name.

High options volume is being seen in Chesapeake (NYSE:CHK), Las Vegas Sands (NYSE:LVS) and JPMorgan (NYSE:JPM).