Unusual Options Activity Review: AMR, TIF, UAL, DAL, LUV, NGD, YHOO, MWW, FMCN, ALU, SFL, ONXX, SPX, NDX, VIX, SPY

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Unusual Options Activity Review For Tuesday, November 29, 2011

Market Recap
Stocks finished mixed after big gains recorded Monday. Some of the focus mid-morning was on the Conference Board's Consumer Confidence Index, which rose to 56 in November and its best levels since July. The number was much better than the 42.5 that was expected and comes after data released over the weekend showed record retail sales on this year's Black Friday shopping day. Signs of improving consumer confidence seemed to help offset some negative corporate news, including an announced bankruptcy of AMR, the parent of American Airlines, and an 8.7 percent loss in Tiffany (TIF), which issued an earnings warning. In addition, a successful auction of bonds sent yields in Italy off record highs. The good showing at the auction comes the same day EU Finance Ministers were meeting to outline plans to help stem the deepening European Debt Crisis. Hopes for the Eurozone seemed to help keep a floor under the equity market through midday. From there, trading was choppy and market averages finished decidedly mixed. The Dow Jones Industrial Average added 33 to Monday's 291 point advance. The tech-heavy NASDAQ lost 11.8 points.

Bullish Trading
United Continental (UAL) gained altitude amid strength in some of the airliners after AMR, the parent of American Airlines, announced plans for bankruptcy. AMR shares lost $1.36 to only 26 cents per share. Meanwhile, Delta (DAL) gained 37 cents to $7.80; Southwest (LUV) added 6 cents to $7.95 and UAL rose $1.05 to $17.63. Some players likely viewed the troubles in AMR as good news for its competitors, as more passengers might opt for other carriers if AMR is bankrupt. Some money was likely shifting out of AMR and to other names in the space, as institutional investors were likely selling AMR, but trying to maintain the same amount of exposure to the sector by adding other names. For whatever reason, UAL was up and options volume surged to 6X the daily average, with 41,000 calls and 20,000 puts traded on the airliner. December 20 calls, which are 13.4 percent out-of-the-money and expiring in 17 days, were the most actives. 10,590 contracts changed hands.

Bullish trading was also seen in New Gold (NGD), Yahoo (YHOO), and Monster Worldwide (MWW).

Bearish Trading
Puts on Focus Media (FMCN) were heavily traded Tuesday. Shares came under fire last Monday, falling from $25.50 to $15.53, on talk Muddy Waters Research had published a negative research note about the company. Muddy Waters has been getting some notoriety lately for bearish calls on certain Chinese-related names. However, FMCN came off session lows Tuesday and finished up 9 cents to $17.08 after a Muddy Waters analyst appeared on CNBC and didn't seem to offer any negative commentary about FMCN. Still, puts on the Chinese media company remain actively traded. Total volume in FMCN Tuesday was 54,000 puts and 16,000 calls. While some of the flow appeared to be put selling, others were likely buying downside puts on concerns about further weakness in FMCN in the weeks ahead. December 15, 16 and 18 puts were the most actives on the stock Tuesday.

Bearish trading was also seen in Acatel Lucent (ALU), Ship Finance (SFL), and Onyx Pharmaceuticals (ONXX).

Index Recap
Trading was slow in the options market again Tuesday. 324,000 calls and 517,000 puts traded across the S&P 500 Index (SPX), NASDAQ 100 Index (NDX) and other cash indexes, which is only about 62 percent of the recent average daily volume, according to Trade Alert data. Meanwhile, CBOE Volatility Index (VIX) lost 1.49 to 30.69. VIX tracks the expected volatility priced into S&P 500 Index options and is now down 11 percent on the week. VIX is falling and volume is light, which is not an unusual pattern heading into the yearend. It's sign that the options market is "pricing in" the possibility for slower trading during the holiday period. However, VIX remains above 30 as uncertainty persists. Not only is the European Debt Crisis still unfolding, the domestic economic calendar holds key data this week - including jobs data Friday.

Analyzing the ETF Market
The largest options trade Tuesday was in the SPDR 500 Trust (SPY), which added .34 cents to $120.05 on a rather slow day of trading. Meanwhile, in options action, a 40,000-contract block of December 102 puts traded on the SPYders for 15 cents per contract. The block coincided with 20,000 December 119 puts at $2.82. The trade appears to be part of a 1X2 put ratio backspread, in which the strategist sold the 119s and bought twice as many of the 102s. If held through the expiration and SPY settles above $119 per share, both legs of the spread expire worthless and the strategist keeps the credit. Better profits are possible, however, if SPY makes a volatile move below $102. In a way, the backspread is also a form of "disaster insurance".
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