Tuesday Options Recap

Sentiment

Stock market averages are well off session highs following a round of weak economic data Tuesday. The stage was set for morning gains on Wall Street after the euro rallied around hopes for a new aid package to Greece. The euro is trading up .7 percent against the buck. However, the underlying tone of trading turned more cautious mid-morning after the Commerce Department reported that its index of consumer sentiment fell to 60.8 in May, which was down from 66.0 and much worse than the 66.3 that economists had expected. At the same time, the Chicago PMI showed a decline to 56.6 for May, which represents a sharp drop from the 67.6 last month and also well short of expectations (62.5). Still, easing anxiety about the European Debt Crisis seems to have outweighed the poor domestic economic news. The Dow Jones Industrial Average is holding an 88-point gain. With thirty minutes left to trade, the tech-heavy NASDAQ is up 26.2 points. CBOE Volatility Index (.VIX) has given up early gains and is down .08 to 15.90. Trading in the options market is slow, with 7.1 million calls and 4.7 million puts traded so far.

Bullish Flow

Apple Computer (AAPL) Weekly puts and calls are seeing heavy trading amid optimism for the company’s Worldwide Developer’s conference. Although it is scheduled for Jun 6 – 10 and after the Weekly 6/3 contracts expire, trading is active on speculation about potential product announcements at the event. The list includes a Lion operating system, an advanced mobile OS for iPad, iPhone and iTouch, as well as the company’s upcoming cloud services offering. The WSJ is also reporting this morning that Steve Jobs will be present, even though he is on a medical leave of absence. Shares are up $7.82 to $345.23 and weekly at-the-money 345 calls are the most actives. 26,818 have changed hands. The OTM 350 calls are active. At the same time, Weekly 340 puts have traded 16,100 contracts and the action also included some spread purchases (buying 340s and selling 345s). Implied volatility is up 5 percent to 20 and options action in Apple is likely to remain brisk this week heading into the event.

Optimer Pharmaceuticals (OPTR), a San Diego, CA biotech, is up 77 cents to $13.74 after the FDA approved Difiicid, a new drug to fight hospital infections. Shares hit a high of $14.70 on the news Friday afternoon. Options action is brisk Tuesday, with 10,000 calls and 2,170 puts traded in the name so far. Jun 15 calls, which are now 9.2 percent out-of-the-money and expire in 17 days, are the most actives. 6,300 traded (62 percent Ask) against 17,878 in open interest. Some of the action might be closing, as the June 15 call is the largest open interest position in the name. Jun12.5 puts and calls are seeing active trading as well. Implied vols in OPTR are down 11 percent to 55 now that the event risk has passed.

Bearish Flow

Russell 2000 Small Cap Index (.RUT) adds 3.71 to 839.97 and the Jun 895 – 905 call spread is seeing early interest. It appears that the spread is being sold-to-open at 30 cents, about 20K so far. The strategist is probably looking for the Russell to hold below 895 through the June expiration, which would represent a 6.55 percent move higher over the next 16 days.

Implied volatility Mover

Nokia (NOK) implied volatility jumped today, as shares fell on a revised outlook. The company lowered guidance for its core devices and services unit for both the second quarter and the fiscal year. Shares are down $1.15 to $7.05 on the day. Meanwhile, 60,000 calls and 53,000 puts have changed hands in Nokia options, which is 6.5X the average daily. July 8 puts, which are now 11.9 percent in-the-money and have traded 92 percent on the bid, are the most actives and are probably seeing some liquidating sales. Still, implied volatility jumped 26 percent to 35 on the session.