Sunday, March 31, 2013

Tuesday Options Recap

Sentiment

Stock market averages rebounded from morning losses and are holding solid gains late-Tuesday. Hong Kong’s Hang Seng lost 4.2 percent on disappointing economic data overnight. Meanwhile, European markets saw sluggish action Tuesday after Moody’s warned France might be downgraded. Weakness in overseas trading set the table for morning losses on Wall Street. However, BofA (BAC) erased early losses and is the big winner in the Dow today. Shares gained 10.7 percent after the bank reported a 56-cent per share quarterly profit. IBM is seeing a 4.2 percent post-earnings loss and is now the Dow’s only loser. Trading was mixed at midday, but stocks caught a bid in afternoon trading on unconfirmed reports France and Germany have agreed on an EU bailout plan. The Dow Jones Industrial Average is now up 206 points and at session highs. The tech-heavy NASDAQ gained 44. With less than an hour to trade, CBOE Volatility Index (.VIX) is down 3.09 to 30.30. Trading in the options market is relatively light, with 7.9 million calls and 6.8 million puts traded across the exchanges so far.

Bullish Flow

DR Horton (DHI) sees an impressive rally Tuesday. Shares fell to a low of $9.4 early, but are now up $1.06 to $10.60 and moving to new session highs. The stock is up 12.8 percent off its lows of the day. Options action has been picking up as well. 16,000 calls and 2,260 puts traded on the homebuilder so far. October 9 calls, which are now $1.60 in-the-money, are the most actives. 11,030 traded. Some short call writers might be covering positions ahead of the expiration, as 100 percent of the volume has been at the ask. The top trade is 7,950 for $1.38 and open interest is 24,081 — the second largest position in DHI behind Jan $10 puts. Meanwhile, implied volatility in options on the stock is down 7 percent to 49 after data released today showed the NAHB Index of homebuilder sentiment (HMI) jumping to 18 this month, from 14 in September and much better than the 15 that was expected.

Talisman Energy (TLM) adds 53 cents to $13.56 and options volume on the Calgary-based oil company is running 12X the average daily after 7,900 calls and 725 puts traded on the stock. Jan $14 calls are the most actives. 4,440 traded. Another 2,205 Jan $13 and 744 Jan $12 changed hands. Implied vols up 1.5 percent to 54. The increased call activity might be in reaction to an analyst upgrade. Tudor Pickering raised the stock to Buy.

Bearish Flow

Sears Holdings (SHLD) jumps $1.77 to $74.32 and one strategist sells-to-close a position in 8,500 Jan 50 puts at $1.79 and buys-to-open a Nov 60 – 67.5 put spread for $1.94, 9500X. Looks like a roll of a bearish position or possibly a hedge after a 42.9 percent surge in shares in less than a month. SHLD traded for $52.04 at the closing bell on 9/22.

Implied Volatility Movers

Human Genome Sciences (HGSI) adds $1.75 to $13 after the Daily Mail reported that Glaxo might bid $25 per share for the company. The article circulated late-Monday. HGSI is rallying around the story today and options volume on the biotech is 16,000 calls and 3,280 puts. Nov 15 calls, which are 16.5 percent OTM and expiring in 31 days, are the most actives. 1,700 traded. Oct 12, Nov 16, Nov 17, Jan 17.5 and Jan 24 calls on HGSI are seeing volume as well. Meanwhile, implied volatility in the options on the stock jumped 47 percent and is now elevated at 127.5.

Unusual Volume Movers

Bullish flow detected in Toll Brothers (TOL), with 7125 calls trading, or 3x the recent avg daily call volume in the name.

Bearish activity detected in Polycom (PLCM), with 4730 puts trading, or 6x the recent avg daily put volume in the name.

Bullish flow detected in Biosante Pharmaceuticals (BPAX), with 6971 calls trading, or 4x the recent avg daily call volume in the name.

Unusually high volume is also being seen in IBM (IBM), Cree (CREE), and EMC (EMC).

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