Hot Option Plays: Long Weekend Midday

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Cusick’s Corner 01-22-2013 Midday
Traders are back to work after a long weekend (and it was long for me – currently crate training a lovable but loud puppy). The Bank of Japan announced that it will begin purchasing large quantities of US Treasuries…wait for the punchline…in 2014! That is like when I told my 9 year-old daughter that we can buy a dog and we did but she is 14½ when we got it. From a currency perspective, the rhetoric (and that is all it is until 2014) is firming up the Yen and putting in a potential low in that currency. Also, keep an eye on the Aussie Dollar, FXA, with all the action in Asia, this commodity based currency could be potentially on the move to the upside. I am also keeping an eye on Tech, QQQ/XLK. Heavyweights GOOG & AAPL are reporting today and tomorrow respectively. Looking at the Jan Weekly options in Google, the options marketplace is pricing in an Estimated Move of potentially ~$33 either up or down into the event. See you After Hours.

Stock market averages are not much changed following relatively upbeat earnings news, but disappointing existing home sales numbers Tuesday. Traveler’s (NYSE:TRV) is up 2.4 percent and the best gainer in the Dow Jones Industrial Average after its earnings topped street views. Freeport McMoran (NYSE:FCX), DuPont (NYSE:DD), Verizon (NYSE:VZ), and Delta Airlines (NYSE:DAL) are also up on earnings. Trading was mixed early on the heels of the reports, but then market averages slipped after the latest Existing Home Sales report showed a decline to an annual rate of 4.94 million, from 4.99 million and below expectations of 5.1 million. Equity markets were mostly lower elsewhere as well. Japan’s Nikkei finished with modest losses after the BOJ, as was widely expected, said it would maintain a 2 percent inflation target by purchasing assets at an unlimited rate. European markets are broadly lower despite a round of mostly better-than-expected economic data on German economic sentiment and Eurozone sentiment. The euro is down .2 percent to 1.3295 on the dollar. Crude oil is up 25 cents to $96.29 a barrel and gold gained $5.5 to $1692.5 per Troy Ounce. The Dow is now up 7 points and the NASDAQ dropped 8. CBOE Volatility Index (.VIX) is up .61 to 13.07 after falling to new multi-year lows Friday. Overall trading in the options market is active to start the week, with about 3 million calls and 2.7 million puts traded through 11:30am ET.

Bullish Flow
Beazer Homes (NYSE:BZH) shares dipped to a low of $16.99 this morning after the latest Existing Home Sales numbers were released, but have since erased the loss and are up 17 cents to $17.41. Options volume on the homebuilder is running 3.5X the daily average, with 8,660 calls and 735 puts traded in the name. The activity is heavily concentrated in the February call options. Feb 20s, which are 17.7 percent out-of-the-money and expiring in 24 days, are the most active. 5,825 traded against 918 in open interest. February 19 calls on BZH are also seeing interest. 2,357 traded vs. 1,398 in open interest. It’s not clear what is motivating the interest. BZH is due to report earnings on February 4.

Dunkin Brands (DNKN) adds 14 cents to $35.88 and February calls on the stock are busy for a second day. Friday’s activity created 8,414 contracts of new open interest in the Feb 37.5s. At 8,457 contracts, the Feb 37.5 call option is the largest OI in the name. The action continues today, as another 2,815 contracts have traded. February 35 calls are the second most actives in the stock. 1,150 contracts changed hands. Total volume is 4,250 calls and 250 puts. It’s not clear why investors are dunking into calls on the stock, as there are no obvious headlines in DNKN lately. Earnings are slated for January 31.

Bearish Flow
iShares Small Cap Fund (IWM) is touching new record highs and is up 39 cents to $88.96. The ETF, which holds the same names as the Russell 2000 Small Cap Index (.RUT), is now up 44 percent from the mid-November 2011 lows. On the options front, some investors seem to be bracing for a pullback in the small caps, as 290,000 puts and 86,000 calls have traded on IWM. Three of the four top trades are part of a spread, in which the investor sold 15,000 March 92 calls at 63 cents per contract, bought 15,000 March 86 puts for $1.26, and sold 15,000 March 83 puts at 66 cents. In other words, according to a source on the exchange floor, upside 92 calls were sold to buy a downside 83 – 86 put spread. 3 cents was collected on the package and the three-way spread makes its best profits if IWM falls to $83 or less through the expiration, which represents a decline of 6.7 percent or more.

InvenSense (INVN), a Sunnyvale, CA technology company, is up 4 cents to $12.65 and options volume on the stock is running 3.5X the daily average. 3,400 puts and 535 calls traded on the stock. February 12.5s puts, which are 15 cents out-of-the-money and expiring in 24 days, are the most actives. 3,114 traded against 382 in open interest. The company reports earnings tomorrow afternoon and shares fell 7.4 percent on 10/24 when the company last reported. A shareholder might be taking positions in Feb 12.5 puts on concerns about another negative reaction when the company next reports results.

Unusual Volume
Symantec (NASDAQ:SYMC) options volume is running 2X the (22-day) average, with 20,000 contracts traded and call volume accounting for 96 percent of the volume.

Beazer Homes (NYSE:BZH) options volume is 3X, the average daily, with 9,350 contracts traded and call volume representing 85 percent of the activity.

NRG options volume is running 2X the average daily, with 7,120contracts traded and call volume accounting for 95 percent of the activity.

Increasing options activity is also being seen in Travelers (NYSE:TRV), Synovus (NYSE:SNV), and Western Union (NYSE:WU).

Implied Volatility Mover
Implied volatility in the options on 3D Systems (DDD) is moving higher today. The stock is up $4.63 to $70.45 on high volume of more than 3 million shares and notching new highs today. There doesn’t seem to be any specific news to explain the 7 percent jump in the stock. Meanwhile, options volume is running 2.5X the daily average. 11,000 calls and 13,000 puts traded on the Rock Hill, SC machinery company. February 60 puts and 70 calls are the most actives and 30-day implied volatility is up 20 percent to 57.5.

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