Wednesday Options Recap

Sentiment

Stock market averages are lower again on worries about the deepening European Debt Crisis. A poor auction of German bonds added to recent worries that the risks from the debt mess are spreading to the core of the Eurozone. A poor reading on Chinese manufacturing, which sent Hong Kong’s Hang Seng 2.1 percent lower Wednesday, added to elevated anxiety levels on Wall Street as well. The domestic economic news was mixed. Data showed personal spending up just .1 percent in October and the University of Michigan Sentiment Index little changed at 64.1 in late-November. Orders for Durable Goods fell .7 percent in October and .2 percent less than expected. Meanwhile, jobless claims increased by 2,000 to 393K last week and 2,000 more than expected. The domestic economic data continues to take a backseat to worries about the unfolding debt saga on the other side of the Atlantic. The Dow Jones Industrial Average is down 206 points and the tech-heavy NASDAQ lost 54. With about 90 minutes left to trade, CBOE Volatility Index (.VIX) is up 1.58 points to 33.55. Trading in the options market remains active, but is slowing ahead of the Thanksgiving holiday. 6.2 million calls and 7 million puts traded across the exchanges so far.

Bullish Flow

Walgreens (WAG) touched a new 52-week low this morning, but rallied midday and is now up $1.23 to $31.97 amid heavy trading in the options on the drug store chain. 47,000 calls and 13,000 puts traded on the stock so far, which is 3X the daily average. Dec 35 calls, which are 9.5 percent out-of-the-money and expiring in 23 days, are the most actives. 11,700 traded. Dec 33, Dec 34, Dec 36, Dec 37, Jan 34, and Jan 35 calls on Walgreens are actively traded as well. Meanwhile, implied volatility in options on the stock is up 15 percent to 37. A flurry of activity surfaced in WAG upside calls on talk the company has reached a settlement with Express scripts. However, the speculation has not been confirmed by any of the major news services.

Bearish Flow

Dendreon (DNDN) loses 56 cents to $7.79 and one strategist initiates a three-way spread on the biotech. 4,560 Jan 9 puts were bought on the stock for $1.94 and the Jan 7 – 10 strangle sold at $1.35, 6900X. In other words, they apparently sold Jan 10 calls to buy the 3X2 Jan 7.5 – 9 put ratio spread. The position looks opening and was tied to 220.4K shares at $7.75.

Harmony Gold (HMY) loses 62 cents to $12.40 on a rough stretch for the gold miners after the yellow metal lost another $21.60 to $1,680.60 an ounce. PHLX Gold and Silver Mining Index (.XAU) is off 5.71 to 189.50 today and is down 10.8 percent since 11/11. In options action, one strategist seems to throwing in a towel on a bullish trade in HMY, as a Jan 12.5 – 14 put spread is bought on the miner for 99 cents, 8000X. It likely closes a position opened last Wednesday when the same spread was sold at 47 cents, 8000X.

Implied volatility Mover

Express scripts (ESRX) is seeing relative strength and high call volume amid strength in the space on unconfirmed talk of a possible settlement between the company and Walgreens (Briefing). ESRX is up 50 cents to $42.91. Options volume on the stock is 19,000 calls and 4,200 puts. The flow is scattered across a number of Dec, Jan and Feb calls. Jan 50s are the most actives, with 3900 traded. Meanwhile, implied volatility in ESRX options is up 9 percent to 41, as no official settlement announcement has apparently been made.