Tuesday Options Recap

Sentiment

Stocks are mixed on a relatively quiet day of trading Tuesday. After a 291-point rally in the Dow Monday, the underlying tone took a wait-and-see feel ahead of a meeting among EU Finance Ministers related to the debt crisis. Falling yields following an auction of Italian bonds seemed to ease anxiety levels a bit ahead of the meeting. In the US, focus quickly shifted to a surprisingly strong reading on Consumer Confidence, which jumped to its best levels since July. According to the Conference Board, it’s index of consumer sentiment rose to 56 this month, from only 40.9 in October and much better than the 42.5 that was expected. However, AMR is in the spotlight after announcing plans for Chapter 11 bankruptcy and Tiffany (TIF) lost 9 percent on disappointing guidance. BofA (BAC) and JP Morgan (JPM) are also lower and helping to keep a lid on any rally attempts in the Dow Jones Industrial Average. Still, the Dow has added another 87 points. The tech-heavy NASDAQ lost 2 points. CBOE Volatility Index (.VIX) dipped 1.5 points to 30.63. Trading in the options market is slow for a second day, with 5.8 million calls and 5 million puts traded across the exchanges so far.

Bullish Flow

Bank of America fell to a 52-week low of $5.1 early, but has since battled back and is now down just a penny to $5.25 per share in mid-morning trading. Interesting trade in the bank early is a 39000-contract block of Jan 6 calls bought for 28 cents per contract. 57,570 now traded, making it today’s most actively traded options contract. 14,560 Dec 6 calls traded on the bank as well. Total volume through the first hour is 90K calls/49K puts and implied volatility in BAC options is steady at 79 percent.

Yahoo (YHOO) adds 41 cents to $15.46 and an 11,098-contract block of Dec 18 calls trades on the Internet giant for 20 cents on BOX. The market was 18 to 20 cents at the time. 13,350 traded against 24,202 in open interest. April 18 calls are the second most actives in Yahoo, with 3,745 traded. Total volume is 37K calls/7135 puts and implied volatility in YHOO options is down 2.5 percent to 54 on reports that private equity firm THL is interested in a buyout of the company’s US business (Briefing).

Bearish Flow

Ship Finance (SFL) loses $1.28 to $9.65 and implied volatility in the options on the stock is elevated, amid increasing put volume today, after Moody’s downgraded the stock today. 2,060 puts and 340 calls traded in SFL. By way of comparison, typical volume through midday is 500 contracts. Jan and Feb 7.5 puts are the most actives, with 876 and 544 traded, respectively. Directional sentiment based on the overall flow is 65 percent bearish and implied volatility jumped 27 percent to 101. Ship Finance was the subject of bearish order flow last week after peer Frontline (FRO) warned that working capital was becoming an issue. SFL reported earnings on 11/23.

Implied volatility Mover

Eldorado Gold (EGO) is down 3 cents to $16.88 on the session and options action is heating up in the Vancouver-based gold miner. Recent trades include a multi-exchange sweep of 2,878 Dec 18 calls at 41 cents when the market was 30 to 35 cents. Another sweep of Dec 18 calls traded at 30 cents when the market was 25 to 30 cents. 7,437 now traded against 9,832 in open interest, which is the second biggest position in the name. Meanwhile, implied volatility in the options on EGO is up 7 percent to 53 and data indicate some closing buyers in upside calls on the stock Tuesday.