Wednesday Options Recap

Sentiment

News from the eurozone continues to drive Wall Street and stock market averages are holding gains late-Wednesday. The euro added another 1.2 percent on the buck while Germany’s DAX and France’s CAC 40 both gained more than 2 percent Wednesday after EU Commission President Barroso outlined a proposal to help the banking system. In the US, the economic calendar remains light and included the release of FOMC minutes this afternoon. Fed officials noted risks to economic growth, including strains in global financial markets, but the text held no major surprises. The market showed little reaction to the news. The Dow Jones Industrial Average has added 145 points and the NASDAQ gained 26. With 45 minutes left to trade, CBOE Volatility Index (.VIX) is down 2.15 to 30.71. Trading in the options market is much more active than Monday and Tuesday. 9.2 million calls and 9.6 million puts traded so far.

Bullish Flow

Sears Holdings (SHLD) is a big percentage gainer and options on the retailer are actively traded today. 8,065 calls and 5,725 puts traded on the stock so far. After rallying to a midday high of $74.30, shares are now up $5.32 to $72.28. October 80, January 77.5, and October 75 calls are the most actives. Most of the action has been in smaller lots. The top trade is 350 Jan13 30 puts for $5.20 when the market was $4.80 to $5.20. A noteworthy trade is a three-way spread, in which the strategist apparently sold Oct 67.5 puts and bought Oct 75 - 80 call spreads. .75 for the package, 248X. Overall, the options order flow seems to reflect the bullish action in the stock price and is interesting, as there are no obvious headlines on the ticker today. Implied volatility in options on the stock is also higher, up 4.5 percent to 61.5.

iShares Emerging Markets Fund (EEM) adds 89 cents to $38.98 and one investor buys 48,000 Dec 42 calls on the ETF for $1.12 on AMEX. It might add to positions opened over the past two days. 48,000 were bought to open for 85 cents on ISE Monday and 48,000 for 89 cents yesterday. Average price over the past three days is 95.3 cents. The contract is 7.8 percent OTM with a .33 delta and 113,501 in open interest. The market is now $1.12 to $1.14. EEM touched a 52-week low of $33.42 intraday on Oct 4 and is up 16.9 percent since that time.

Bearish Flow

News Corp (NWS) adds 30 cents to $17.19 and one strategist buys-to-open 15000 Oct 16 puts on the media giant for 15 cents per contract. After a seven-day 13 percent run higher, the contract is almost 7 percent OTM with a -.17 delta and expires at the end of next week. 20,450 traded against 6,168 in open interest. The put purchase might be a play on the hacking scandal that rocked the company in the summer. According to news reports out yesterday, the Egan Jones advisory firm sent a letter to shareholders urging them to oust four board members, including the sons of Chief Executive Rupert Murdoch.

Implied Volatility Mover

VIX dipped below 30 for the first time since Aug 4th, and VIX put flow is running twice the normal pace, with 230K contracts trading at midday vs 133K calls. Nov 25 Puts lead the most actives, with early buyers paying 50cents for 3000 when the index was near 32 and a recent block of 10000 printing at the 65cent midmarket level. Other large put flow involved the Dec 20-21 put spread, trading at 12.5cents 12000x, likely closing.

Unusual Volume Movers

Bullish flow detected in HCA (HCA), with 5442 calls trading, or 6x the recent average daily call volume in the name.

Bearish activity detected in Infinera (INFN), with 5460 puts trading, or 11x the recent average daily put volume in the name.

Bullish flow detected in Diana Shipping (DSX), with 3228 calls trading, or 12x the recent average daily call volume in the name.

Meanwhile, high options volume is being seen in Microsoft (MSFT), Wells Fargo (WFC), and Alcoa (AA).