Wednesday Options Recap

Sentiment

Stock market averages are rallying around earnings and deal news Wednesday. DELL computer shares are up 13.4 percent after the computer maker reported profits that easily topped Street views. Meanwhile, action continues on the merger front, with Nelton Peltz’s firm making a play for Family Dollar (FDO) while Genzyme (GENZ) and Sanofi (SNY) are finalizing terms of a long-awaited deal. The day’s economic news was mixed. Housing Starts jumped to an annual rate of 596,000 last month and much better than the 540,000 that economists were expecting. The Producer Price Index [PPI] printed at .8 percent for January and a little hotter than the .7 percent that was anticipated. Meanwhile, Industrial Production fell .1 percent and was much worse than the .6 percent increase that economists had forecast. Yet, the focus seems to be on domestic stock news. The Dow Jones Industrial Average has added 64 points and the tech-heavy NASDAQ gained 23.5. The CBOE Volatility Index (.VIX) edged up .20 to 16.57 ahead of the expiration. Trading in the options market is active, with 10.1 million calls and 7 million puts traded so far.

Bullish Flow

Sirius Satellite (SIRI) adds a dime to $1.79 early Wednesday and is trying to rebound from a 6.8 percent post-earnings slide suffered yesterday. A noteworthy options trade in the satellite radio provider is a block of 16,780 Jan $2 calls at 28 cents each when the market was 25 to 28 cents. 22,480 now traded (99 percent Ask). Sep 2 calls are seeing interest as well. Implied volatility is up 5.5 percent to 57.5, as some investors appear to be looking for SIRI to move beyond $2 per share in the months ahead.

AMD continues its run higher. Shares are up 44 cents to $9.05 and its best levels of the day. The top options trade is a block of 10000 February 8 calls at 79 cents and probably a liquidating trade ahead of the expiration. 13,540 now traded. A block of 6,500 Jan 7.5 puts traded on the 81-cent bid and might also be a closing trade. Meanwhile, 5,000-contract block of Mar 9 calls at 48 cents on the ISE is an opening buyer, according to ISEE data. 13,135 traded. Feb 9, Mar 10, and April 10 calls are seeing interest as well. Total volume is 56,000 calls and 13,000 puts. Overall flow in AMD has been bullish lately amid relative strength in shares of the chipmaker. The company reported earnings on 1/20 and, although shares dipped in the days that followed, AMD is up 12.8 percent since that time. Implied volatility has eased 2 percent to 48.5 on the session.

Bearish Flow

91,000 calls and 137,000 puts traded in Wells Fargo (WFC) through midday. Shares are down 80 cents to $32.88 on news of the abrupt exit of the company’s CFO Howard Atkins, which some view as a sign of internal conflicts within the bank about disclosure practices (link to thestreet.com story) The top options trade is a block of 3,000 March 32 puts at 80 cents, which appears to be an opening customer buyer, based on ISEE data. 19,500 traded. Volume in the March 33 calls is 27,000 contracts. Players are jockeying for the next move in the stock and implied volatility is up 4 percent to 30.5.

Implied Volatility Mover

DELL rallies $1.77 to $15.68 after the computer maker reported a quarterly profit of 53 cents per share, which blew past analyst estimates of 37 cents. Options volume is heavy. 200000 calls and 104000 puts traded so far. The top trade is a Jan 12.5 – 17.5 strangle sold at $1.45, 12500X on AMEX. Implied volatility is down 23 percent to 30, compared to a 52-week high and low of 54 and 25.5.