Monday Options Recap

Sentiment

Weakness across the Eurozone set the table for morning losses on Wall Street and stock market averages remain under water late-Monday. France’s CAC 40 lost 2.6 percent and paced a decline in the Eurozone while the euro gave up 1.5 percent towards 1.39 on the dollar after bond yields jumped in Spain and Italy Monday. In the US, the domestic economic news included the Chicago PMI, which fell to 58.4 in October, down from 60.4 last month and also below expectations of 58.9. Traders are also talking about the potential fallout from MF Global’s announced bankruptcy today. Meanwhile, the FOMC is set to begin a two-day meeting on interest rates tomorrow and key jobs data are slated for Friday. At the end of the day, investors found sufficient numbers of reasons to book profits after the equity market surge of October 2011. The Dow Jones Industrial Average is down 198 points and probing session lows. The tech-heavy NASDAQ lost 36.5. With forty-five minutes left to trade, CBOE Volatility Index (.VIX) is up 3.41 points to 27.94 and near session highs. Overall trading volume is impressively light, with only 5.4 million calls and 5.9 million puts traded across the exchanges so far.

Bullish Flow

Microsoft (MSFT) loses a nickel to $26.93 and is one of 27 Dow stocks trading early-Monday. Early options trades on the software-maker include a Feb 29 – 30 call spread for 21 cents, 4100X on ISE. More than 10K now traded and sentiment data indicate a firm is opening a new position in the spread. MSFT is up 9.8 percent since Oct 3, but has been trading sideways in a range during the past two weeks. Shares recorded a 52-week high of $29.46 intraday on 1/27. Today’s spread trader might be looking for the stock to break out of the recent range and revisit those levels through mid-Feb 2012.

Bearish Flow

SPDR Financials (XLF) trades down 32 cents to $13.73 and a 55000 Dec 9 puts trade on the ETF for 6 cents on ISE. ISEE is reporting a closing customer. Another 20,000 were bought for 6 cents on PHLX. 75000 now traded, which makes it today’s most active options contract. The flow probably closes out one leg of Dec 9 – $11 put spreads, bought for 34 cents, 50000X, and for 35 cents, 25000X, on 9/19. At that time, Dec 9s were being sold at 23 cents. The Dec $11 puts are possibly still open, as open interest is 371,296 and the second biggest position in XLF (behind Dec $14 calls). In other words, they’re closing out the short leg of the spread after a 21.9 percent advance in shares since October 3, but holding the Dec 11 puts, which were bought on Sep 19 for 57 and 58 cents per contract. The market on the Dec $11s is now 12 to 14 cents.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is moving off Friday’s multi-month closing lows and was recently up 3 points to 27.53 amid very light volume in the options market today. 3.5 million calls and 4.1 million puts traded across the exchanges so far, which is only about 71 percent the daily average during the past month. Trading is relatively slow in the VIX pit as well, with 104,000 calls and 54,000 puts traded in the product through 1:00 ET. One noteworthy trade is a Jan 35 – 40 call spread on the volatility index bought for 77.5 cents, 10000X. Beyond that, there isn’t much to report as today’s uptick in the volatility index might simply be technical after the 46 percent plunge since Oct 4. In addition to end-of-month position squaring and the 1.5 percent slide in the euro/USD today, anxiety about the fallout from MF Global’s bankruptcy, Friday’s jobs data and the FOMC’s rate announcement Wednesday are likely helping lift the VIX midday Monday.

Unusual Volume Movers

Bullish flow detected in Leap Wireless (LEAP), New with 2797 calls trading, or 3x the recent avg daily call volume in the name.

Bearish activity detected in Dunkin Brands (DNKN), with 2236 puts trading, or 9x the recent avg daily put volume in the name.

Bullish flow detected in Auxillium Pharmaceuticals (AUXL), with 2026 calls trading, or 4x the recent avg daily call volume in the name.

SPDR Basic Materials Fund (XLB), iShares Long-Term Bond Fund (TLT), and SPDR Metals and Mining ETF (XME) are seeing high volume today.