Options Recap For January 13, 2015

Turnaround Tuesday! The Dow rallied as much as 280 points in morning trading, but the gains didn’t hold and the bearish underlying tone for 2015 continues. The industrials are now off 100 points.

The theme is the same: Crude oil slips and the energy sector comes under fire. There is notable flight-to-safety as Treasury bonds continue to climb and the yield on the benchmark ten-year falls below 1.9%. Gold strengthens and adds $5 to $1234.

VIX hit a morning low of 17.65, but is now up 1.36 to 20.96.

Overall options flow is picking up from the slow pace on Monday. Total options volume across the 12 exchanges is projected to be about 20 million, with 7.7 million calls and 6.5 million puts changing hands so far.

The largest trade of the day is a 92,100-lot of Mar 34 puts on the iShares Emerging Markets Fund (EEM) at 22 cents. It appears to be a closing seller. However, the same investor also bought an 83,150-lot of Jun 30 puts for 30 cents per contract, according to a source on the floor. With EEM up a nickel to $39, the two big blocks trades probably roll a put (hedge) out to June from March and down in strike prices.

Another theme in the options market today – big call writes. There was a seller of 90,000 Pfizer (PFE) Apr 35 calls, a seller of 22,000 Chevron (CVX) Jun 120 calls, and 55,000 Microsoft (MSFT) Mar 50 calls. What do these names have in common? They’re all Dow stocks! By writing calls, the investor seems to be expressing the view shares will see limited upside in the months ahead. It’s probably covered call writing against massive stock positions after the recent uptick in implied volatility in most large cap names. Keep in mind that 1 call option controls 100 shares and therefore, for instance, 90,000 Pfizer calls represents 9 mln shares.

Bullish options flow is being seen in Corning (GLW), Phillips 66 (PSX), and Toll Brothers (TOL). Bears are circling Taiwan Semi (TSM), Masco (MAS), and Schlumberger (SLB).