OptionsHouse Tuesday Morning Roundup: Surprising News for the Housing Market Leads to a Bump in Consumer Confidence, and Heavy Options Activity in Delta Airlines (DAL) and Vale (VALE)

The markets began to turn negative after a bullish boost on the open, mostly driven by the rumblings that Apple is developing a CDMA version of the iPhone, which will be available on the Verizon network. As a result, both stocks, (AAPL and VZ) were higher this morning. This news was only partially confirmed by the Wall Street Journal.

January Case-Shiller home prices were also out this morning posting a seasonally adjusted .3% increase in the first month of the year. Home prices were down a total of .7% for the past year in total. Los Angeles had the largest seasonally-adjusted increase for the year of any of the 20 cities Case-Shiller tracks.

In the report, David Blitzer, S&P’s managing director and index committee chair, said:

“While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading.”

Later in the morning, the consumer confidence index unexpectedly rose to 52.5, up from 46.4 in February. This number is still well below January’s 56.5. The consumer confidence reading was above forecasts since the majority of economists only expected the index to rebound to 51.0.

As a result of the surprising data, the market seems to be showing slight signs of weakening today as stocks are mixed in their performance.

However, the options markets are seeing fairly heavy action today, with large trades occurring in many different sectors. For instance, we saw a large put buyer in Delta Airlines (DAL):

DAL: $14.61 down $0.0400 or 0.27% volume: 3.98 million shares
Jan12 5.00 Puts: volume over 10172, versus open interest of 665

These puts are way out of the money and their purchase doesn’t necessarily mean DAL is going to drop to zero or that the trader believes that either. Some fund managers have to limit risk and set a floor for their investments, one of the ways this can be done is with puts. Also remember that if volatility jumps, these puts, which have 21 months until expiration may also increase in value. This could be the bet this trader is making.

We also saw notable action in Brazilian mining company, Vale (VALE):

VALE: $32.28 up $0.2800 or 0.87% volume: 14.62 million shares
May10 33.00 Calls: volume over 17660, versus open interest of 2076

Remember there are still a couple hours left in the trading day and the volume of these issues may continue to rise, but this is where we are seeing some heavy options activity today. Also remember that options can be bought or sold and volume does not indicate which.

These are a few of my team’s observations this morning. If you have others you would like to add to this list, please feel free to add them in the comments.

Photo Credit: woodleywonderworks

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