Options Traders Sweet on Honeywell Today

Today's options activity was less than stellar, as retail investors remained on the sidelines for the most part.

However, those who did participate in today's trading session continued to be sweet on Honeywell(HON) options, as orders flooded trading floors amid its final push for approval of its acquisition by General Electric(GE).

Volatility Index
Today	% Change
21.72	-3.21%
Source: ILX

The implied volatility of Honeywell options came down dramatically today, as efforts to win over the European Commission are coming up short. After heading up to as high as 94 in the past two days, volatility blew out and dropped to 58. Those who bought July call options aggressively when the deal seemed possible are now selling them aggressively, according to one floor trader. (A call option gives the holder the right, but not the obligation, to buy the underlying stock.)

Nasdaq Volatility Index
Today	% Change
45.27	-7.06%
Source: ILX

The July 35 calls traded about 30,000 contracts on open interest of 29,818. The premium, or cost of those options, has come down substantially from $5 ($500) to $2 ($200). The July 40 calls traded over 30,000 contracts as well on open interest of 68,490. The premium on the 40s has dropped to 75 cents ($75). The stock closed down $3.30, or 8.6%, to $34.90.

"When there are more buyers in the market, volatility goes up. When there are more sellers in the market, volatility goes down," says Paul Foster, strategist and editor at 1010WallStreet.com. He added that many investors didn't want to be left holding these calls heading into the holiday week, which is expected to be very quiet.

Elsewhere, BJ Services(BJS) saw robust volume in the July put options. (A put option gives the holder the right, but not the obligation, to sell the stock at a specific price by a certain date.) The July 30 puts traded 6,800 contracts on open interest of 1,216, with the premium ranging between $2 ($200) and $2.20 ($220). The July 35 puts also traded 6,800 contracts on open interest of 7,014. One investor was responsible for both trades. The stock closed up 25 cents at $29.

"The investor sold the 35 puts and bought the 30 puts," said Brian Carr, strategist at Letco, the designated primary market maker for BJ Services. Carr speculates that the investor was "rolling down" his position since the stock has sold off dramatically recently. Basically, what rolling down does is increase the amount of premium the investor takes in to offset the loss in the price of the stock.

The stock has dropped 30% in the last six weeks.

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