Wednesday Options Recap

by: Frederic Ruffy


Stock market averages slipped through midday, and then the selling intensified in afternoon action when minutes from the latest FOMC meeting were released. Fed officials pledged to offer additional accommodating measures as necessary, but also said they expect gradual economic recovery later this year. While the text didn’t hold any material surprises, the knee-jerk reaction on Wall Street reflects diminishing expectations for another round of easing. Stock market averages, which had traded a bit lower in lackluster action ahead of the news, fell sharply shortly after the minutes were released at 2:00 pm ET. Beyond that, it’s been a rather light news day. The only economic stats of the day – Trade Balance and Wholesale Inventories – were in line with expectations and had minimal market impact. Crude oil is up $1.80 to $85.70 per barrel on weekly inventory data, but gold lost $9 to $1571 an ounce. The Dow Jones Industrial Average is off 85 points. The NASDAQ lost 25. With less than an hour left to trade, CBOE Volatility Index (.VIX) has given up its gains and is down .18 to 18.54. Overall options volumes are light, but reflect the negative underlying tone. 4.5 million calls and 4.8 million puts traded across the exchanges so far.

Bullish Flow

Nokia (NYSE:NOK) adds 13 cents to $1.93 in active trading of 33 million shares and is moving to session highs. Options volume is a relatively light, 7,870 calls and 5,190 puts, or a little more than half the expected. But July and Aug 2 calls are the most actives and 30-day ATM vols touched new 52-week highs of almost 100 this morning before easing back to 97. Players might be anticipating a rebound in the stock after a five-day 13 percent losing skid. Nokia has plummeted 65 percent since March.

Bearish Flow

Google (NASDAQ:GOOG) is off $14.59 to $567.11 and falling to session lows in active trading of 2.3 million shares on worries about next week's earnings release. The Internet giant is due to report the afternoon of Thursday, July 19 and Sanford Bernstein analysts said to expect a "material miss." The firm said today it expects Google to post $7.83 billion in revenues after traffic acquisition costs, which is well below Street expectations of $8.44 billion. While pre-earnings jitters are weighing on the shares, options action is picking up as well. 44,000 calls and 33,000 puts so far. July 590 calls, which are falling 4% out-of-the-money and will expire the day after the company reports earnings, are the most actives. 4,600 traded. Interestingly, the next 7 most actives in Google are weekly contracts that expire at the end of this week and before the profit report is released. 33% of the flow in Google is in the weekly 7/13 contracts -- 570 and 575 puts are the most actives. At the same time, implied volatility in the options on the stock is moving up 6% to 39.5 and back to the 2012 highs seen on 4/10, just before earnings were last released on 4/12. Shares fell 4.1% to $624.60 on the news and are down an additional 9.3% since that time.

Implied volatility Mover

CBOE Volatility Index (.VIX) is off .34 to 18.38 in morning action, as the S&P 500 is unchanged at 1341.50 Wednesday. The volatility index is up 8% month-to-date and ticking higher in recent days as investors brace for the floodgates to open on second quarter earnings beginning next week. Volumes have been light in recent days, however. For instance, only 74,000 calls and 23,000 puts traded in the VIX pit so far today. 40 percent of the call volume is due to one spread trade, in which the investor apparently sold 14,800 July 26 calls on VIX at 16 cents and bought 14,800 August 26 calls for $1.32. The Jul - Aug 26 call spread, for a $1.16 debit, might be a bet that VIX will see limited upside through the July expiration (6 days), but then potentially spike before the August expiry (41 days).

Unusual Volume Movers

Bearish activity detected in Aruba Networks Inc. (NASDAQ:ARUN), with 9167 puts trading, or 7x the recent average daily put volume in the name. Shares near $12.89 (-0.69) with ATMIV lifting by 2.11 point and 54% of today's put premium trading offer side.

Bearish activity detected in Check Point Software Technologies Inc. (NASDAQ:CHKP), with 7307 puts trading, or 5x the recent average daily put volume in the name. Shares near $44.56 (0.28), with ATMIV lifting by 1.54 point and 79% of today's put premium trading offer side.

Bearish activity detected in Angie's List Inc. (NASDAQ:ANGI), with 2715 puts trading, or 5x the recent average daily put volume in the name. Shares near $15 (-0.5) with ATMIV lifting by 9.37 point and 96% of today's put premium trading offer side.

High options volume is being seen in Barrick Gold (NYSE:ABX), Century Link (NYSE:CTL),