Wednesday Options Recap

Sentiment

Stock market averages are sporting modest losses late-Wednesday. Domestic economic news was mostly positive and included the Consumer Price Index for October, which dipped .1 percent and .1 percent more than expected. October Industrial Production rose .7 percent and .3 percent more than economists had predicted. The NAHB Homebuilder Sentiment Index also showed surprise improvement. HMI rose to 20 this month, from 17 the month before and better than the 18 that was expected. Stock market averages were in the red this morning despite the data and fell to session lows after EU Group Leader Junker said he’s worried about Germany’s debt levels. The sell-off never gathered any strength and the Dow was sporting a modest loss at midday. However, selling intensified in the final forty-five minutes after Fitch warned that contagion in Europe poses a risk to US banks. The Dow is now down 157 points and falling to session lows. The tech-heavy NASDAQ gave up 40 points. CBOE Volatility Index (.VIX) is up 1.91 points to 33.13. Trading in the options market is active, with 6.6 million calls and 7.2 million puts traded across the exchanges so far.

Bullish Flow

Titanium Metals (TIE) sees high call volume for a second time this week. 8,050 calls and 500 puts traded on the stock Monday. Open interest in calls on TIE increased by 2,906 contacts, compared to 293 puts, after Monday's activity. Shares are off 17 cents to $15.85 and today's flow includes a multi-exchange sweep of 3,710 Dec 16 calls at the 90-cent asking price. A customer bought-to-open the position, according to data from one of the exchanges. 6,224 now traded. Jan 15 puts, Dec 18 calls, Dec 15 puts, and Jan 17.5 calls on Titanium Metals are seeing interest as well. Meanwhile, implied volatility in the options on the stock is up 15 percent to 57, as some retail investors in the options market seem to be bracing for a move in the underlying in the weeks ahead. Earnings were reported on Nov 3. Shares lost 6.1 percent on the news and have seen choppy action since that time.

Micron Technology (MU) sees a flurry of activity in midday. Shares are up 28 cents to $5.75 and the focus is on Nov, Dec and Jan 6 calls. The flow includes several multi-exchange sweeps trading at the offer and lifting implied vols up 17.5 percent to 90, probably a play on recent headlines that a jury has reached a verdict in a case between Rambus (RMBS) and MU. Rambus saw an initial spike to $18.55 on the headlines, but gave up the gains and is now up a dime to $18.14. Meanwhile, options order flow seems to reflect expectations for a victory for Micron

Bearish Flow

NetApp (NTAP) loses 58 cents to $41.32 and a Jan13 35-50 bearish risk-reversal is apparently bought on the stock at 10 cents, 7000X. The position looks tied to 490K shares at $41.60 and might have been initiated in anticipation of volatility in the underlying later today when earnings are reported. Separately, a Jan 30 – 40 put spread is apparently sold on NTAP at $3.85, 4700X, and is possibly a closing trade. The stock has been drifting lower in the past few days, but has performed well in the weeks leading up to the earnings release. Netapp shares have rallied 21.9 percent since September.

Implied volatility Mover

Pepsico (PEP) is up $1.39 to $65.89 and implied volatility in the options on the stock is moving higher today after New York Post reported today that the company’s Board is divided regarding a potential split of the company’s snack and beverage units. According to the story, a source said “I hear there is going to be a shakeup” at Pepsico. Shares rallied early and hit a morning high of $66.65. Meanwhile, options on the stock are seeing high volume for a second day. Open interest increased by 37K after yesterday’s action. Dec 65 calls and 60 puts saw the largest increase. Today, Dec 67.5 calls are the most actives. 11,540 traded, mostly in smaller sizes. The top trade is a multi-exchange sweep of 745 contracts at the 41-cent asking price. Nov 67.5, Dec 65, Jan 70 and Jan 67.5 calls on PEP are actively traded as well. Total volume is 37,000 calls/14,000 puts and implied volatility in the options on the stock is up 11 percent to 21.5.