Two days ahead of the monthly expiration, option volume was extremely light, but earnings news was drawing traders to names like
Tyco's January 30 calls have traded 7,100 times and were up 35 cents. The January 2007 calls, also striking at 30, saw 10,800 contracts trade, and they rose 40 cents. The action comes after Tyco reported sharply higher fourth-quarter earnings thanks to a low tax rate, but revenue that was little changed from last year and below estimates.
The calls are both out of the money, meaning they're below the strike price for a call option, signaling that the investors here have optimistic views on Tyco's future prospects. Shares of Tyco were higher by $1.56, or 5.7%, to $28.96.
Meanwhile, American Express puts were heavily exchanged after the company warned that its fourth-quarter results would be weak. The November 50s have traded 11,500 contracts, or around three times the open interest. The December 50s have traded 2,000 times and gained $1.05.
When a company warns, it usually sends traders who are short the puts scrambling to cover their positions before they can be assigned. If a trader is short a put, he has sold the option contract. This situation gives the purchaser the right to make the option's seller buy the underlying security at the strike price. A short put can be offset by buying a put with the same strike and expiration to close the position.
Shares of American Express were down $1.62, or 3.2%, to $49.31.
saw the November 65 calls trade 12,400 contracts. With the stock moving higher, an investor could have purchased the upside calls in anticipation of continued gains in the stock. On the flip side, with expiration two days away, a trader might have sold the calls into the stock's strength. The shares were gaining $1.84, or 3%, to $64.12.
The November 30 calls on
were swapped 7,600 times ahead of its earnings release, scheduled for after the close of trading.
When out-of-the-money calls trade before a company's earnings release, the investor is betting that a strong report will push the stock higher. The stock, recently at $27.88, would need to trade up $2.12 in order for the calls to be at the money.
Other high option activity could be found in
EchoStar's January 27.50 calls traded 11,000 times, double the open interest. The stock was down 36 cents, or 1.4%, to $24.89. Home Depot's November 42.50 calls moved 5,500 times and slipped 25 cents, while the stock lost 51 cents, or 1.2%, to $41.89.
Sirius saw the January 7.50 calls trade 5,600 times. The stock was up 23 cents, or 3.2%, to $7.40.
The CBOE Market Volatility Index (VIX), which is based on the implied volatility of the
options and is used as a gauge for fear in the market, was recently up 1.9% to 12.46. The CBOE Nasdaq Volatility Index, a measure of the implied volatility of the Nasdaq 100, dropped 1.2% to 14.61.
To view Mike Marino's video take on today's option action, click here.