Mid Day Options Market Commentary for September 25, 2012options Xpress - Tuesday, September 25th, 2012
As I noted last week and yesterday, the bid will be tested. The action so far today shows that it is up for the test, continuing to support on the dips. Housing prices were a buoy early in the session but I want to keep an eye on the put/call ratio, specifically the Retail put/call. If you look at the oX put/call, .37, you have 8 calls being purchased vs. 3 puts. When the action starts to push to one side a little too much, a red flag is raised. At this stage this is only a flag, but if sector rotation picks up and there is still no volume, volatility could be on the move which potentially fuels uncertainty. See you After Hours.
Stock market averages are holding modest gains on a restively slow morning of trading. Economic data was in focus after Case Shiller reported this morning that its index of 20-city home prices increased by 1.2 percent in July. Economists were expecting .8 percent. Later, the Conference Board said its index of Consumer Confidence was up to 70.3 in September, from 60.6 and much better than the 63.0 that was expected. Elsewhere, stocks were trading quietly on a slow news day across the Eurozone and the euro edged up .15 percent to 1.295 against the dollar. Crude oil prices gained 65 cents to $92.58 and gold ticked $4 higher to $1768.5 an ounce. Stock market averages are seeing modest strength as well. The Dow Jones Industrial Average is up 26 points and the NASDAQ gained 7. CBOE Volatility Index (.VIX) ticked up .06 to 14.21. Overall volumes are a bit light today, with about 3.1 million calls and 2.6 million puts traded across the exchanges through 11:45pm ET.
This Morning's Bullish Trading
Research In Motion (RIMM) is up 17 cents to $6.47 in active trading of more than 12 million shares and seeing active trading during the company's Blackberry 10 Jam event. RIM apparently updated its subscriber growth numbers at the conference and the stock is reacting favorably to the news. Meanwhile, 16,000 calls and 17,000 puts traded on the stock. The largest trade in RIM (by number of contracts) is a 1000-lot of Weekly 5.5 puts traded on the 17-cent bid. 6,700 contracts traded, which makes it the most active options contract on the Blackberry-maker today. Some investors are possibly writing the puts on the view the stock will hold above $5.5 (-15%) through the remainder of the week and, if not, they are willing buyers of the stock at that price. Weekly 7.5 calls are the second most actives in RIMM today. 3,300 contracts have changed hands so far.
One of the top, or largest, options trades so far today is in the iShares Emerging Markets Fund (EEM). Shares are down 15 cents to $41.59 and a 25000-contract block of January  55 calls trades on the ETF for 50 cents per contract when the market was 44 to 50 cents. This appears to be a new position (because volume exceeds open interest in the contract) and, if so, an aggressive play on the emerging markets. The contract is more than 32 percent out-of-the-money and expires on January 18, 2014.
This Morning's Bearish Trading
Tesla Motors (TSLA) dropped today. Shares of the Palo Alto, CA electric vehicle and parts-maker are down $2.80 to $27.86 on heavy turnover of 3.7 million shares after the company lowered its 2012 profit forecast. Telsa is struggling to ramp up production of the Model S, the company's first major product marketed to the general public. In options action, about 12,000 puts and 8,000 calls traded on TSLA. 20,000 contracts of options volume is more than 3X the daily average for the stock. The October and November 26 puts are the most actives in TSLA today.
Zillow (Z), a Seattle, WA real estate information company, is down $2.91 to $41.50 in active of trading of 5.7 million shares, with the weakness being attributed to a negative report from Citron Research (unconfirmed). The stock is down and options volume is running 5X the daily average. About 15,000 puts and 2,750 calls traded in Zillow so far today. October 40 and 35 puts are the most actives in the name through midday.
Activision Blizzard (ATVI) options volume is running 17.5X the (22-day) average, with 64,000 contracts traded and call volume accounting for 75 percent of the volume.
Hertz (HTZ) options volume is 5.5X, the average daily, with 31,000 contracts traded and put volume representing for 65 percent of the activity.
Eaton (ETN) options volume is running 10.5X the average daily, with 25,000 contracts traded and put volume accounting for 69 percent of the activity.
Increasing options activity is also being seen in Abbott Labs (ABT), Allstate (ALL), and Walgreen (WAG).
Implied Volatility Mover
Implied volatility in the options on Itau Unibanco (ITUB) is moving up amid relative weakness in shares of the San Paulo-bank today. ITUB is off $1 to $15.79 on volume of 12.3 million, which is more than double the typical volume for midday action. 3,670 puts and 1,700 calls traded on the stock. October 16 puts, which are now 21 cents in-the-money, are seeing the bulk of the flow. 3,130 traded and implied volatility in ITUB options is up 18.5 percent to 32.5.
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