Tuesday Options Recap

Sentiment

Trading is slow after the three-day weekend. Economic news helped set a positive tone for morning trading after data showed an index of Consumer Confidence improving to 64.5 in December, which was up from 55.2 the month before and significantly better than the 58.0 that was expected. Meanwhile, crude oil bubbled $1.55 higher to $101.23, but gold lost $12 to $1594 an ounce. Trading was uneventful overseas as well. Back in the US, the Dow Jones Industrial Average has traded in a narrow 58 point range and is up 25 points. The tech-heavy NASDAQ gained 13. With about an hour left to trade, the CBOE Volatility Index (.VIX) added 1.19 to 21.92. Trading in the options market is very light and being influenced by ex-dividend activity. 5.6 million calls and 2.7 million puts traded across the exchanges so far.

Bullish Flow

Nokia (NOK) is down 14 cents to $4.79 and options order flow on the Finnish telecomm is interesting today. 24,000 calls and 1,500 puts traded in the name so far. July 7 calls are the most actives. 6,690 traded. January 5, February 6, April 7, and July 8 calls are seeing interest as well. Meanwhile, implied volatility is up 10 percent to 53. Some players might be taking positions in upside calls on NOK on hopes for a rebound in 2012. The stock is down 53.5 percent year-to-date.

Pulte Homes (PHM) adds a penny to $6.09 and a 15,884-contract block of Feb 6 puts trades on the homebuilder at 47 cents when the market was 47 to 50 cents. 19,169 now traded against just 9 contracts in open interest. Put sellers are perhaps expecting Pulte to hold recent gains over the next couple of months. The stock is up 72 percent since Oct 3 and last week made an attempt to break above a 200-day moving average.

Bearish Flow

Toll Brothers (TOL) is flat at $20.13 and 11.000 Feb 20 calls trade on the homebuilder at $1.20 when the market was $1.20 to $1.30. The apparent call write might add to positions opened one week ago when 11,000 traded at $1.40 on 12/20 when the market was $1.40 to $1.55. Shares have rallied 46.4 percent since Oct 3 and the call writing might reflect expectations for limited upside through mid-Feb. Also note that PHM is seeing put selling today and the action in two builders might be a pairs trade in the homebuilding sector.

Implied volatility Mover

Implied volatility in the options in Sears (SHLD) jumped today. Shares are down $11.58 to $34.27 and came under fire this morning after the retailer said total sales for the quarter are projected to be down 5.2 percent. Sears also said it was shutting 100 - 120 Sears and KMart full-time stores. Meanwhile, options volume on the stock so far is 15,000 calls and 25,000 puts, which is 6X the daily average. January 25 puts are seeing the most volume. More than 5,000 traded. Jan 27.5, 30 and 35 puts on Sears are seeing interest as well. The big move in the underlying and the heavy options volume have conspired to lift implied volatility in SHLD options up 31 percent to 84 and new 52-week highs.