Wednesday Options Recap

by: Frederic Ruffy


Stock market averages were in the red late-Wednesday. The underlying tone had a wait-and-see feel this morning ahead of the FOMC rate announcement this afternoon. With no economic data on the calendar and quiet trading across the eurozone, there wasn’t much else to guide the action. The Dow Jones Industrial Average was sporting a modest loss in sluggish trading through midday, but then moved into positive territory after Fed officials, as had already been discounted in previous days, announced another dose of Operation Twist. “Buy-the-rumor, Sell-the-news” set in and the industrial average is now down 63 points. The Nasdaq lost 10 points. CBOE Volatility Index (.VIX) is off .30 to 18.08. Trading in the options market is running about the typical levels, with 6.9 million calls and 6.7 million puts traded across the exchanges so far.

Bullish Flow

JPMorgan (NYSE:JPM) is up 89 cents to $36.27 in active trading of more than 11 million shares and the second best gainer in the Dow (behind Cisco) early-Monday on reports the bank has cleared 70% of a bad position that so far caused the company to report a $2 to $3 billion in losses. Five minutes into trade, a multi-exchange sweep of 2,650 Weekly $37 calls traded on JPMorgan for 15 cents when the market was 13 to 15 cents. ISEE is reporting an opening buyer and apparently a bet that the stock will be trading north of $37 (2%) by the end of business Friday. 7,750 Weekly 37 calls now traded on JPM and the market is 19 to 21 cents. Total volume is 36,000 calls and 18,000 puts. 30-day at-the-money implied volatility is easing 3% to 33 and down from about 41 when the stock found a bottom two weeks ago (6/4).

Bearish Flow

Molycorp (MCP) is up $2.21 to $22.87 on surging volume of more than 6 million shares amid strength in the rare earth names after China announced plans to crack down on illegal mining and tighten production levels. Options volume on MCP through Noon ET is 27,000 calls and 6,360 puts. Weekly 23 calls, which are now 13 cents out-of-the-money and expiring in just a few days, are the most actives. 3,500 traded against just 28 contracts in open interest. Weekly 21, Weekly 22, July 23, July 24, and July 25 calls are busy and seeing opening activity as well. 30-day at-the-money implied volatility in MCP jumped 18% to 59, as speculative call buyers are playing the stock for a rebound after the 64% plunge suffered since July 2011. Short interest is likely involved in the call buying as well. At the end of May, short (as percent of float) ratio was more than 38%.

Unusual Volume Movers

Bullish flow detected in Tyson Foods (NYSE:TSN), with 5,549 calls trading, or 6x the recent average daily call volume in the name.

Bullish flow detected in AK Steel (NYSE:AKS), with 10,650 calls trading, or 3x the recent average daily call volume in the name.

Bearish activity detected in Safeway (NYSE:SWY), with 3,629 puts trading, or 3x the recent average daily put volume in the name.

High options volume is being seen in Walgreen (WAG), P&G (NYSE:PG) and Arena Pharmaceuticals (NASDAQ:ARNA).

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