Thursday Options Recap

by: Frederic Ruffy


Stock market averages fell early and are near session lows heading into the final 90 minutes of trading Thursday. The highly-anticipated 2-day EU summit has thus far failed to stir much enthusiasm, as the euro is down .4% and testing 1.24 against the buck for the first time since early-June. Equity markets traded mixed in sluggish action across Europe Thursday. However, the Dow Jones Industrial Average opened with losses following in-line readings on first quarter GDP (1.9%) and jobless claims (386K). The selling gathered some additional momentum shortly after 10:00 ET after the Supreme Court upheld most of the key tenets of Obama’s healthcare law. The reaction in the healthcare sector was mixed; with hospital names scoring gains, but big losses suffered in the managed care and commercial health insurance names. Meanwhile, JPMorgan (NYSE:JPM) is reeling for a 5% loss and the biggest drag on the Dow on a New York Times article suggesting the bank understated its trading losses. The industrial average is down 163 points and 14 points from session lows. The Nasdaq is down 55 points. CBOE Volatility Index (.VIX) is up 1.53 to 20.98 amid increasing volumes in the options market. 4.7 million calls and 4.8 million puts traded across the exchanges so far.

Bullish Flow

Microsoft (NASDAQ:MSFT) is off 62 cents to $29.55 and an investor sells 10,000 August 30 calls on the software-maker at 84 cents to buy 8,000 August 28 puts for 60 cents. The bearish combo probably closes a position opened on June 4 (when the stock was 3.7% below current levels and 10,000 Aug 30 calls traded at the 75-cent asking price and 8,000 Aug 28 puts on the $1.32 bid - rolling out of July). The same investor today also sold 10,000 Oct 27 puts on Microsoft at 81 cents, bought 10,000 October 29 calls for $1.90 and sold 12,500 October 32 calls at 58 cents. So, they probably sold to close August while opening a new bullish three-way spread in October. All five legs traded on CBOE.

Bearish Flow

JPMorgan (JPM) is down $1.28 to $35.50 on a New York Times story suggesting the bank’s “bungled trade could total as much as $9 billion, far exceeding earlier public estimates.” Shares are the biggest losers within the Dow today and the top options trade on JPM is a Sep 23 – 27 (2X1) put ratio spread for a penny, 3000X on AMEX. (Bought 1, sold 2). Looks like a new position on concerns the stock might slip to the mid-20s by mid-September.

Implied Volatility Movers

The decline in implied volatility in some healthcare names is impressive today. Shares of many of the managed care and commercial insurance names are under pressure after the Supreme Court upheld Obama's healthcare law. In WellPoint (WLP), for instance, shares are down $3.53 to $65.96 in heavy trading of more than 15 million shares. Options volume is 6X the daily average, with 47,000 calls and 25,000 puts traded on the stock. The top trade is a 10,000-lot of July 70 calls for 49 cents and above the asking price. Still, implied volatility in WLP is down 45.5% to 25.5 now that this important event risk has passed. HMA IV is off 44 percent to 46, Aetna (NYSE:AET) down 4% to 29, and Cigna (NYSE:CI) falling 36.5 to 25.

Unusual Volume Movers

Bullish flow detected in RR Donnelley and Sons Company (NASDAQ:RRD), with 2,650 calls trading, or 2x the recent average daily call volume in the name.

Bullish flow detected in PetSmart (NASDAQ:PETM), with 2,123 calls trading, or 3x the recent average daily call volume in the name.

Bearish activity detected in Marriott International (NYSE:MAR), with 2545 puts trading, or 3x the recent average daily put volume in the name.

High options volume is being seen in Lululemon Athletica (NASDAQ:LULU), GM (NYSE:GM) and Aetna (AET).