Wednesday Options Recap

Sentiment

Wall Street can’t shake off the worries about the deepening European debt crisis and stock market averages are deep under water late-Wednesday. The catalyst for the morning sell-off was a spike in Italy’s ten year bond yields, which topped the critical 7 percent levels on Wednesday. The prospect of higher borrowing costs amid a debt mess and political turmoil in Italy adds to worries about problems in other deeply indebted countries like Greece and Portugal. The euro lost 2 percent on the buck. The decline across Eurozone equity markets, paced by a 2.1 percent loss in Germany’s DAX, was orderly. However, the selling on Wall Street intensified late in the day and the Dow Jones Industrial Average is down 375 points in the final hour. The tech-heavy NASDAQ lost 98 points. CBOE Volatility Index (.VIX) jumped 8.09 points to 35.57. Trading in the options market is picking up from the slow pace seen Monday and Tuesday. 7.4 million calls and 9.1 million puts traded so far.

Bullish Flow

Direxion Daily Energy Bear 3X Fund (ERY) is up $1.26 to $12.53 and Dec 13 calls on the ETF are busy for a second day. Yesterday's flow traded at a value-weighted average price (VWAP) of about $1.30 and created 31,404 in new open interest. At 32,336 the Dec 13 call easily the most open interest in options on the fund, followed by the Dec 12 call (which has 4,927 in OI). Today, players were buying in for a VWAP of $1.50. Volume in the contract is now 8,464 and the market is $1.60 to $1.65. Buying calls on the leveraged ETF is a bearish play on the energy sector because ERY is designed to move 300 percent the inverse to the Russell 1000 Energy Index.

Wells Fargo (WFC) loses 76 cents to $25.77 and $2.99 is collected on WFC Apr 26 puts, 12300X on ISE. Data indicate an opening sale in a customer account. 13000 total. Implied volatility in Wells Fargo options is up 18 percent to 42.5 today, compared to a 52-week high and low of 79 (8/8) and 21 (4/26).

Bearish Flow

SuccessFactors (SFSF) is presenting today at a Wells Fargo Tech, Media, and Telecom conference and shares are up 33 cents to $27.48 today. Meanwhile, options volume is running 2.5X the daily average, being led by March 26 put buyers. 7,046 traded against 10 contracts in open interest. The flow includes multi-exchange sweeps at the offer between $3.50 and $3.60 per contract. Sentiment data is consistent with opening customer buyers and implied volatility in SFSF options is up 6 percent to 50, as some players don’t seem convinced that today’s gains will hold. Shares fell to a 52-week low of $19.52 and have been grinding 40.8 percent higher since that time.

Implied volatility Mover

ING is under pressure and implied volatility in the options on the Amsterdam-based bank is moving higher Wednesday. Shares are down $1.11 to $7.50 and the top options trade is a 351-lot of Nov 9 calls on the five-cent bid, which might be a liquidating trade. 1,099 contracts have changed hands against 1,281 in open interest. Dec 8 puts are the next most actives. 1,052 traded (100 percent Ask) against 52 contracts in open interest. Meanwhile, implied volatility in the options on ING is up 28 percent to 91.5, amid worries about the European debt problems after borrowing costs in Italy jumped Wednesday. Yield on Italy's 10-year breached the critical 7 percent level.