Yesterday's reversal caused the VIX to rise 5%, but at 10.59, it remains below its 20-day moving average and near historic lows. The put/call ratio inched up to 0.66, slightly above its 0.62 10-day moving average. But this morning's hot producer price number and the big selloff in Thailand could keep the market on its heels, and we should see an increase in both put
option activity -- especially in index-related products as investors look to protect gains heading into the end of the year -- and in the VIX, which should at least rise above 11 this morning.
Among the most active options and implied volatility gainers were Express Scripts (ESRX - commentary - Cramer's Take) which made a surprise $58.50 cash-and-stock offer for Caremark (CMX - commentary - Cramer's Take), topping a bid by CVS (CVS - commentary - Cramer's Take). Shares of Caremark jumped some $5, and while most of the option activity was focused in what appeared to be profit-taking in the January calls, there was a notable transaction in the March $50 calls which traded over 5,000 contracts in what looked like an arbitrage with the Express Scripts March $70 call, which also traded 5,000 contracts.
In CVS, the puts were more active than the calls, possibly on fears the shares would give back recent gains. The stock had finally stabilized after
repeated pummeling on concerns over Wal-Mart's (WMT - commentary - Cramer's Take) roll out of $4 generic drugs and a less-than-enthusiastic reception to its proposed acquisition of Caremark. Now the questions is will they come back with a higher bid, and if they don't, what happens to their growth plans and ability to compete on the large and leveraged scale that would have been provided by the combination.
Other active implied volatility gainers were led by the oil and energy sector with names such as BHP Billiton (BHP - commentary - Cramer's Take), IV rising up 20%, and
ExxonMobile (XOM - commentary - Cramer's Take). The energy exchange-traded funds (ETF) such as the Oil Services HOLDRs (OIH - commentary - Cramer's Take) also declined sharply and saw above-average put activity and a 15% increase in implied volatility.
Steven Smith Blog Year-End Options Conundrum 12/18/2006 10:41 AM EST In a tough time of year for contracts, try starting a calendar spread.
Steven Smith Blog See You Soon 11/29/2006 8:10 AM EST Here's where Steve will be for the next week or two.
Steven Smith Blog Looking at LEAPs Strategy 11/28/2006 3:30 PM EST One reader wonders how to handle his holdings now.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
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