Debt ceiling and economic data hit the markets – today’s notable action in stocks

Today’s Bullish Trading

Manitowac (MTW) shares lost 96 cents to $12.75 and options on the Manitowac, WI farm and construction machinery company were heavily traded today. Total volume was 17,000 calls and 920 puts, which is 5X the recent average daily volume for the name. September 15 calls, which are now 17.6 percent out-of-the-money and expiring in 46 days, were the most actives. 12,865 traded including a 1260-contract block at the 60-cent asking price on the CBOE. About 52 percent of the day’s volume was at the offer, suggesting that some of the action was driven by upside call buyers looking for the stock to perform well from now through mid-September. There’s no recent news to explain the heavy trading in MTW calls today. Earnings were last reported on July 26. Dow Jones Newswires options report today notes that other machinery companies – Pall Corp and Timken (TKR) – also bullish trading today. Some investors might be “call”ing a bottom in the group.

JC Penney (JCP) is seeing a third day of bullish trading. As noted in yesterday’s midday, August 30 calls on the retailer were being bought Monday and August 31 calls were busy on Friday. Today, shares saw a morning spike on heavy volume and are up 28 cents to $30.73. Options volume in JCP includes 18,000 calls and 9,825 puts. August 35 calls, which are 13.9 percent out-of-the-money and expiring in 17 days, are the most actives. 3,530 traded. August 31, 33 and 34 calls are seeing interest as well. The relative strength in the stock and increased call activity in JC Penney comes ahead of monthly same store sales numbers on August 4 and an earnings release on August 12.

TEVA was the subject of an interesting three-legged options spread today. Shares are down 96 cents to $42.80 and have now suffered a two-day 8.2 percent loss after the company announced disappointing results from an FDA trial of its MS drug. Yet, while shares have been under pressure, one strategist seems to view the weakness as an opportunity for a bullish trade and sold 3,000 December 35 puts on TEVA at 59 cents and bought 3,000 December 45 – 50 call spreads at $1.22. They paid a 63-cent net debit on the three-way spread and are apparently looking for the stock to rebound through December. If shares fall below $35 instead they would be on the hook to buy the stock (have put shares at $35) at the strike price of the put option.

Today’s Bearish Trading

Central European Distribution (CEDC) saw a day of heavy put volume today. Shares of the Mount Laurel, NJ exporter of alcoholic beverages touched new 52-week lows and finished down 73 cents to $8.79. Meanwhile, 48,000 calls and 3,425 puts traded in CEDC today. August 9 puts, which are now 21 cents in-the-money, were the most actives. Some investors might have been closing out positions after a 61.5 plunge in shares since February. 14,572 Aug 9 puts traded against 14,507 in open interest. Meanwhile, August 6, December 5, August 8, September 10 and even December 2.5 puts on CEDC were busy as well. The heavy put activity comes ahead of the company’s earnings release, due August 4.

Ten of the top twelve most actively traded options contracts are puts on the SPDR 500 Trust (SPY). The so-called ‘SPYders’ are trading down $1.72 to $127.06 and in the midst of an 8-day 5.6 percent decline. The ongoing slide has triggered a lot of activity in SPY put options. The August 127 puts, which are now at-the-money and expiring in 17 days, are today’s most actives. 137,400 traded. August 120, 125, 126, 128 and 130 puts are heavily traded, as are Sep 105, Sep 125, Nov 118, and Nov 124 puts. Total volume in the exchange-traded fund is 1.73 million puts and 754,000 calls through midday. Some investors are likely buying downside puts on the Spiders on concerns about additional losses for the US equity market in the weeks/months ahead.

Put volume is picking up in William’s Companies (WMB) ahead of earnings. Shares of the natural gas producer are trading down 86 cents to $30.75. Options volume in WMB through midday is 33,000 puts and 8,145 calls. The action included morning buyers of August 28 puts. 24,660 now traded and some of the action might be closing. Open interest is 46,153 and the contract is nearly 9 percent out-of-the-money with 17 days of life remaining. August 27 and 31 puts on Williams Companies are seeing interest as well. The increased put activity in WMB comes ahead of earnings, due out Wednesday afternoon.

Volume Signals

NVidia (NVDA) options volume is running 2.5X the (22-day) average, with 74,000 contracts traded and call activity accounting for 66 percent of the volume.

TEVA options volume is 2.5X the average daily, with 45,000 contracts traded and call volume representing 60 percent of the activity.

Leap Wireless (LEAP) options volume is running 8X the average daily, with 41,000 contracts traded and put volume representing 62 percent of the total volume.

Increasing options activity is also being seen in Hertz (HTZ), Merck (MRK), and JC Penney (JCP).

Volatility Alerts

Ctrip.com (CTRP) is trading down $5 to $39.98 in volatile trading after the online travel company reported in-line second quarter profits, but guided estimates down for the third quarter. CTRP options are heavily traded, with 19,000 puts and 8,000 calls in the name so far. August 40 puts, which are now at-the-money, are the most actives. Volume is approaching 10,000. Some investors might be selling these short-term puts, as 80 percent of the volume has been on the bid and implied volatility in CTRP options is down 17.5 percent to 39.

Index Recap

CBOE Volatility Index (.VIX) dipped in morning trading, but finished the day up 1.13 to 24.79. VIX hit a low of 22.65 early and was in negative territory through midday. However, a late-day sell-off sent the S&P 500 to session lows in the final hour. The volatility index, which tracks the expected volatility priced into S&P 500 options, rallied in the final sixty minutes of trading and closed at its best levels of the day. Meanwhile, trading in the VIX options pits was very busy today. 487,000 calls and 144,000 puts traded on the session. August 30 call options on the volatility index were the most actives. 67,469 traded. August 25 and Sep 35 calls saw heavy trading as well. Some investors were probably buying short-term out-of-the-money VIX call options on concerns that market volatility will remain high in the weeks and months ahead. September is historically one of the more volatile months for the US equity market.

Analyzing the ETF Market

Volume was heavy in the exchange-traded funds today. 6.2 million puts and 3.9 million calls traded across the SPDR 500 Trust (SPY), iShares Small Cap Fund (IWM), and other ETF products, which is 1.5X the recent average daily volume, according to Trade Alert data. The three most actives were puts on the SPY, or “SPYders”. Shares lost $3.29 to $125.79 and closed near session lows. The August 127 puts, which were at-the-money through midday, are now $1.21 in-the-money and traded 194,783 contracts. SPY 125 and 130 puts were the next most actives. Heavy trading was also seen in the iShares Small Cap Fund (IWM) Sep 75 and 77 puts, as well as SPDR Financial (XLF) Aug 15 puts. Some options traders were probably taking bearish positions in puts on the exchange-traded funds on expectations for additional losses in the weeks ahead. Others were probably closing out positions after the 8-day market decline – which is the equity market’s longest losing streak since 2008

Posted in Charting & Analysis, Commentary, Futures, Stocks