Daily Stock Options Recap – August 20, 2010

Sentiment

Disappointing earnings news, weakness in the euro, falling energy prices, and the options expiration exacerbated volatility Friday. Hewlett Packard (HPQ) is down 2.4 percent and the biggest loser in the Dow Jones Industrial Average after the computer maker posted in-line earnings after the close of trading yesterday. Meanwhile, energy-related names came under pressure after crude oil lost 93 cents to $73.86 a barrel. The European Debt Crisis was back in focus as well after the ECB warned that monetary policy would remain loose until next year, sending the euro to 1.273 against the dollar, from 1.283 the day before. Finally, the expiration is likely exacerbating volatility, as players close and adjust positions before the August options come off the board. The Dow Jones Industrial Average was down as much as 124 points. However, with 40 minutes left to trade, the Dow is off just 60. The NASDAQ has battled back to positive territory and is now flat. The CBOE Volatility Index (.VIX) lost .66 to 25.78. Trading is active, with about 6.6 million puts and 6.2 million calls traded so far.

Bullish Flow

Linear Technology (LLTC) trades up 36 cents to $30.09 and early options order flow looks bullish after Morgan Stanley named the stock a Long Tactical Research Idea. Early trades include a multi-exchange sweep of 3,049 Sep 30 calls at the $1.15 asking price. Open interest is 459 and 3249 contracts now traded. Implied volatility is flat at 30.5. The Milpitas, CA semiconductor equipment maker was one of the best gainers in the NASDAQ 100 yesterday. Earnings were reported July 20. Shares are down 4 percent since that time.

Homebuilder Lennar (LEN) lost 20 cents to $12.68 and the Aug 13 – Sep 12 put spread trades at a penny, 10000X. Looks like a roll of a position opened on July 1 when 11,000 Aug 13 puts traded on the $1.04 bid. If so, this strategist is closing the position at a 66-cent profit and then opening a similar one in the Sep 12 puts at 37 cents.

Bearish Flow

Top equity options trades so far today are in Wells Fargo (WFC) after an investor sold 55000 Jan 30 puts at $6.25, bought 55,000 Jan 20 puts at $1.16 and bought 55,000 Jan 22.5 puts at $1.87. All this was tied to shares at $24.4 (20 delta) Shares are up 15 cents to $24.58 and this strategist might be closing a position. On April 23, the same spread traded 30000X. At that time, it seems that the 30s were being bought and the 20s and 22.5s being sold. Shares are down 26.4 percent since that time, resulting in a tidy profit if today’s action offsets the spreads initiated at that time.

Implied Volatility Mover

Petrohawk (HK) is off 59 cents to $15.27 and some players seem to be seizing the weakness in shares of the Houston, TX oil and gas driller to enter bullish trades. Options volume is running 2X the average daily, driven by call buyers in Sep and Dec. The Sep 17.5 calls are the most actives, with 5380 traded and 77 percent trading at the Ask. Similar action is being seen in Sep 15, 16, and 19 calls. Implied volatility is up 11 percent to 50. No news on the sgtock. Earnings were reported 8/9.