Thursday Options Recap

Sentiment

Stock market averages are bleeding red for a second day despite signs of improvement in the housing industry. Data released early Thursday showed New Home Sales at an annual rate of 628K in Nov, from 630K last month and better than the 604K that was expected. Permits, a better gauge of future activity, jumped to 653K from 589K (603K consensus). The strong numbers come one day after NAHB reported that its homebuilder sentiment index rose to 20 this month, from 17 in October and also better than the 18 that was expected. Meanwhile, separate data showed Jobless Claims falling by 5,000 to 388K last week and 10K better-than-expected. Yet, the Philadelphia Fed Survey read just 3.6 in November, from 8.7 last month and below the 5.7 that was expected. Ongoing concerns about the debt crisis in Europe are weighing on trading Thursday as well. Stocks came under fire Wednesday afternoon when Fitch warned that the debt mess will impact US banks. Market action has been volatile since that time and the options expiration is possibly exacerbating the intraday swings as well. With less than an hour to trade, the Dow Jones Industrial Average is down 194 points. NASDAQ lost 57.5. CBOE Volatility Index (.VIX) added 1.95 to 35.48. Volume is up, with 8.7 million calls and 10.4 million puts traded so far.

Bullish Flow

Sears Holdings (SHLD) lost $4.62 to $63.68 Thursday morning after the retailer reported a $421 million, or $3.95 per share, third quarter loss. Early options trades on the retailer include a Nov 60 – 67.5 put spread, sold at $4.20, 4640X. It probably exits a position opened in mid-October when the same spread was bought-to-open for $1.94, 9500X (see 10/18 recap). The stock is down 14.7% since that time.

The top equity options trades in morning trading Thursday were in BofA (BAC), which is trading up 8 cents to $5.98. One player sold 30,000 Dec 5 puts on the bank at 15 cents per contract on AMEX. The position is tied 540k shares at $5.81. Separately, on ISE, a 15000-contract block of Jan13 $4 puts traded on the 75-cent bid, 15,000 May 5 puts on the 68-cent bid, and 15,000 Feb 6 puts on the 78-cent bid. Sentiment data indicate opening positions traded b/d-to-b/d. Meanwhile, implied volatility in BAC has eased 1.5 percent to 65.5.

Bearish Flow

The CBOE's new SPXPM index is having a record day, with 17,000 contracts trading and an hour left to go. The regular SPX index is also very busy, with over 1.2 million contracts traded, or 70% above normal for this point in the day. In the PM contracts, Nov 1190 and 1195 puts lead the most actives, with a number of 247 lots hitting just after noon in what resembles a condor spread for a 35 cent credit. General market volume is approaching 20 million contracts, about 36% above normal, while the underlying stock volume is actually a bit light at 6.26 billion shares.

Implied volatility Mover

Oracle (ORCL) is off $1.38 to $30.61 and options on the software-maker are busy today, with 38,000 calls and 25,000 puts traded on the stock so far. The top trade is a 10000-contract block of Mar 36 calls for 92 cents per contract on ISE and an opening customer buyer, according to ISEE data. Looks tied to 270K shares at $31.56. Most of the other volume has been in smaller sizes. The next biggest trade is a 948-lot of Nov 32 calls on the 7 cent bid. Nov 31 puts, Dec 31 calls, and Jan 33 calls on Oracle are actively traded as well. Implied volatility in options on the stock is up 16 percent to 41.5. No headlines on ORCL Thursday. Prior to yesterday, shares had performed well and rallied 33.3 percent off the 52-week low of $24.72 set intraday on 8/19. However, today’s move (like the declines in the Qs and MSFT) have pushed shares of the software-maker decisively below a 200-day moving average.