Unusual Options Activity Review (CIT, NTAP, NVDA, MU, ADI, SVNT, YGE, UNG, CX, NYT, GM)

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Sentiment
Stocks struggled at the open Tuesday, but found a floor in morning trading and bounced higher after the latest data on consumer confidence surprised to the upside. According to data released 30 minutes into the trading session, the Conference Board's Index of consumer confidence jumped to 54.9 in May, up from 40.8 the month before and much better than economist estimates of 42.6.

The news triggered a reaction across a number of different asset classes. Bonds, which were showing modest gains ahead of the news, sank into the red. Crude oil had fallen below $60 a barrel, but battled back to close up 64 cents to $62.32 a barrel. Meanwhile, stocks surged and never looked back.

The Dow Jones Industrial Average was up 177 points heading into the final forty minutes of trading. The NASDAQ gained 50 with help from Apple Computer (AAPL), which was up 6.4 percent to $130.3 after an analyst upgraded the stock, saying iPhone growth has been underestimated.

Volume was picking up from the slow pace seen on Friday. Approximately 4.4 million puts and 6.4 million calls traded by late session. The CBOE Volatility Index (.VIX) was down 1.55 to 31.08 and off session lows of 30.40 ahead of a busy week for economic news, which includes existing home sales numbers Wednesday morning.





Unusual Options Activity

• CIT options volume was running 3X the usual, with 76,000 contracts traded and call volume representing 90 percent of the volume.

• Options activity in NetApp (NTAP) rose to 2X the usual, with 62,000 contracts traded and call volume representing 57 percent of the volume.

• NVidia (NVDA) options activity was running 2X the usual. 55,000 contracts traded and call volume accounting for 97 percent of the activity.

Increasing volume was also seen in Micron Technology (MU), Analog Devices (ADI), and Savient Pharmaceuticals (SVNT).

Bullish Flow

• Yingli Green Energy (YGE) was up $1.76 to $11.11 after Lazard analysts upgraded the stock to Buy from Hold and Collins Stewart analysts raised their price target to $11. In the options market, volume was running 2X the normal, with 20K calls and 2400 puts traded. June 7.5 and 10 calls were the most actives. Some investors were likely closing positions, as YGE June calls were the subject of increasing buying interest on April 29 (when shares traded for $6.65) and May 11 (when YGE traded near $8.70.) Implied volatility was about 105, up from multi-month lows of 96 late Friday.
  

• US Natural Gas Fund (UNG) was down 8 cents to $13.62, but some players expect the fund to heat up before the October expiration. More than 18K October 14 calls  traded Tuesday, compared to open interest of 6,798. Natural gas was down .026 to $3.489.

Bearish Flow

• Cemex (CX) was up 42 cents to $9.91 and almost 50K June 9 puts traded, or almost 5X the existing open interest. Most of the volume was due to one trade, where an investor bought 45K contracts for an average of 47.5 cents against a position in 1.45 million CX shares for $9.85. No news on the Mexican cement maker Tuesday, but this trade appeared to be a bet on heightened volatility in shares, with profits possible if the stock makes a big move higher or lower. The worst-case scenario? Shares close at $9 at the June expiration (24 days). Implied volatility was up to 75, from about 69 late Friday.
  

• New York Times (NYT) was down 3 pennies to $6.73 and 6,100 puts traded Tuesday. The put volume represents 13X (1,344 percent) the expected and compares to 100 call options. Top trade of the day was a block of 1,705 July 7.5 calls for $1.45 on the ISE, where sentiment data indicated an opening customer put buyers. It appeared to be an opening customer purchase of 3000 contracts. Implied volatility was up to 80 from 76 after a Miama Herald article titled "Twitter Poses a Risk to Newspapers" made the rounds Tuesday morning. Not long after, OptionMonster wrote on Twitter that NYT, along with GCI, WPO, PSO, and SSP, is on their "newspaper watch list."

Implied Volatility Movers

• GM implied volatility was easing a bit. Shares hit a low of $1.12 on bankruptcy fears early, but were up 11 cents to $1.54 late on reports the automaker has secured additional government financing. The story was still developing. Implied volatility eased about 2.5 points, but remained extremely elevated at 425 percent.

Implied volatility was also high in:

• Yingli Energy (YGE)
• AgFeed (FEED)
• Ivanhoe Mines (IVN)

Meanwhile, implied volatility was lower in:

• Citi (C)
• United Therapeutics (UTHR)
• Seagate (STX)

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