Option Troubles Sends VIX Higher

by Frederic Ruffy | May 20, 2011 3:53 pm

Option Troubles Sends VIX Higher

Your daily options trading[1] wrap up.

Sentiment

Stock market averages are lower and some of the focus has been on steep losses in shares of The Gap (NYSE: GPS[2]) and Aeropostale (NYSE: ARO[3]), which are down 16.8% and 15.2%, respectively, on earnings news. Meanwhile, the euro is under pressure and trading down .7 percent against the buck amid ongoing worries about Greek debt problems. However, Crude oil is up $1.21 to $100.14 and gold gained $21.1 to $1,513.50 an ounce. The Dow Jones Industrial Average is down 68 points, but almost 80 points off session lows. NASDAQ lost 7.1. CBOE Volatility Index (CBOE: VIX[4]) added .90 points to 16.43. Options are active due to expiration Friday with 7.6 million puts and 7.3 million calls traded so far.

Bullish Flow

Cheniere Energy (AMEX: LNG[5]) sees a surge to $11.11 per share beginning just before 14:00 ET. Shares of the Houston-based natural gas company are now up $2.25 to $9.94 on news the DOE has approved and authorized the export of natural gas as LNG to any country that has the capacity to import LNG. Options volume is picking up with 22,000 calls and 2,505 puts so far. The expiring LNG May 10 Calls are the most actives with 3,330 traded. May 9, May 11, Jun 9, Jun 11, Dec 10 and Dec 15 calls are seeing interest as well. Cheniere Energy Partners (AMEX: CQP[6]) also higher on the news. Interestingly, LNG Sep 12 Calls saw large purchases in mid-April. The action was noteworthy because the contract was 55% out-of-the-money and trading at 80 cents. Now bid at $1.10.

Market Vectors Gold Mining ETF (NYSE: GDX[7]) loses 70 cents to $54.90 and the GDX May — Jun 55 Call Fly trades at $1.59, 2340 times on the International Securities Exchange. Looks like a roll of at-the-money calls ahead of expiration and has been repeated multiple times. Volume in both contracts is now more than 10,000. The May 55s, which are now 10 cents OTM, traded at 48 cents early and are now bid at 22 cents. GDX hasn’t performed well lately due to a recent correction in the gold market. Shares are down 11.7% month-to-date.

Find more option analysis and trading ideas at Options Trading Strategies[8].

Bearish Flow

American Eagle (NYSE: AEO[9]) is down $1 to $13.62 and puts are active in the retailer after peer Aeropostale (NYSE: ARO[3]) shares lost 15% on an earnings miss. The Gap (NYSE: GPS) is also reeling on earnings news. American Eagle June 14 Puts are the most actives with 5,139 traded (55% on the Ask) against open interest of 5,155. Similar action in the AEO Jun 13 Puts. Jun 14 and 15 calls are busy as well. Implied volatility is to 13% to 46.5, as investors now set sights on American Eagle’s May 25 (before market) earnings report.

Implied Volatility Mover

Brocade Communications (NASDAQ: BRCD[10]) adds 36 cents to $6.62 and options on the chipmaker are actively traded after the company reported second quarter earnings that topped Street expectations. 23,000 calls and 4,900 puts traded so far. The top trade is a 4,283-contract block of BRCD Jul 7 Calls at 29 cents when the market was 27 to 30 cents and is possibly a buyer looking for a run beyond $7 through the July expiration. Shares are already 14.7% over the past month. May 6, Jun 6, and Jun 7 calls are seeing active trading as well. Implied volatility has eased 21% to 40.

Option Flow

Bullish flow detected in Guess (NYSE: GES[11]), with 4445 calls trading, or seven times its recent average daily call volume.

Bullish flow detected in CF Industries (NYSE: CF[12]), with 15,857 calls trading, or three times its recent average daily call volume.

Bullish flow detected in MAKO Surgical (NASDAQ: MAKO[13]), with 9656 calls trading, or three times its recent average daily call volume.

Increasing volume is also being seen in salesforce.com (NYSE: CRM[14]), Sprint (NYSE: S), and Corning (NYSE: GLW[15]).

Frederic Ruffy is the Senior Options Strategist at Whatstrading.com[16], a site dedicated to helping traders make sense of the complex and fragmented nature of listed options trading.

Endnotes:
  1. options trading: http://investorplace.com/options-trading/
  2. GPS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GPS
  3. ARO: http://studio-5.financialcontent.com/investplace/quote?Symbol=ARO
  4. VIX: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIX
  5. LNG: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNG
  6. CQP: http://studio-5.financialcontent.com/investplace/quote?Symbol=CQP
  7. GDX: http://studio-5.financialcontent.com/investplace/quote?Symbol=GDX
  8. Options Trading Strategies: http://investorplace.com/category/options-trading/trading-strategies/
  9. AEO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AEO
  10. BRCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRCD
  11. GES: http://studio-5.financialcontent.com/investplace/quote?Symbol=GES
  12. CF: http://studio-5.financialcontent.com/investplace/quote?Symbol=CF
  13. MAKO: http://studio-5.financialcontent.com/investplace/quote?Symbol=MAKO
  14. CRM: http://studio-5.financialcontent.com/investplace/quote?Symbol=CRM
  15. GLW: http://studio-5.financialcontent.com/investplace/quote?Symbol=GLW
  16. Whatstrading.com: http://www.whatstrading.com/

Source URL: http://investorplace.com/2011/05/option-troubles-sends-vix-higher-lng-gps-brcd-gdx-aeo/
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