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Steve Smith's Mid Day Options Report Dec 7th, 2009

|Includes: CF, NVIDIA Corporation (NVDA), QCOM, SPY

 Even though the VIX is showing a modest tick higher today I think that has more to do with quirks in the product and the Monday effect, market makers generally mark down prices on Friday in anticipation of the time decay that occurs over the weekend, than the reality of a slow sideways market.  A look at the Spyder Trust (NYSEARCA:SPY) at-the-money $111 straddle shows it is trading at about $3.00, which is down nearly 25 or some 7.5% from Friday’s close.  It’s tough to be an option owner with that kind of drag of time decay. 

Telecom shares such as Verizon and AT&T are showing good relative strength today but the real notable bullish option activity is in Qualcomm (NASDAQ:QCOM) as someone purchased a double shot of January call options.  Both the $50 and $55 calls 15,000 times each; a transaction in which consecutive strike prices are both bought or sold is often referred to as a “stupid spread.”  Draw your own conclusions. 

CF Industries (NYSE:CF) shares are up $1.75 to $90.30 on general strength in the Ag names following an upgrade of Potash.  CF option volume is 2x daily average with noatb;e trades being in the Jan. $65 and $75 puts which have traded 6,050 and 3,072 contracts respectively.  Looks like seller in the $65s and buying in the $75 to establish the 1×2 ratio for a 25c net debit.  The Jan. $100 call saw a 8,300 contract block purchase.  CF continues to be in the midst of a three way takeover battle in which Agrium is bidding for I and CF is bidding for Terra. 

Nvdia (NASDAQ:NVDA) shares are up $1.50 to $15.80 on news that INTC is cancelling its graphic chip program.  NVDA options are running about 3x the daily average for the first hour of trade with notable volume focused in the December $15 and $16 calls which have traded over 2,000 contracts each and the $15 put which has traded 1,500 contracts.  Most of the volume is coming in sub-200 contract transactions and prior open interest in the strikes is sufficient to cover so doesn’t look like any major fresh positioning or liquidating of large position.  There had been some eyebrow’s raised this morning noting that shares of NVDA were up for six consecutive days and gained some 11% prior to this morning’s news but there was no major build in option open interest during the past few days.

Disclosure: No Positions