Hot Option Plays: Slow Walk To 1500 Midday

OptionsXpress .green_link a, .green_link a:visited, .green_link a:hover{color:#009F00;font-weight:bold}By OptionsXpress updated January 18, 2013 | More Posts By OptionsXpress | Author's WebsiteSubscribe by RSS Email/Share Page Tweet

Cusick’s Corner 01-18-2013 Midday
The overnight data out of China boosted Asian markets and sparked a rally across multiple sectors. This has been a positive in the sense that it potentially supports continued global growth, while here in the States stocks are not rallying as broadly as our foreign partners. This action in Asia has the Dollar, UUP, coming under potential pressure. Also, industrial metals Copper and Silver, JJC & SLV, are looking poised for some potential upside after the upbeat data in the Far East. See you After Hours.

Stock market averages are holding modest losses following a round of mixed earnings news and a disappointing reading on consumer sentiment. The Univ of Michigan reported Friday morning that its index of consumer sentiment fell to 71.3 in January, from 72.9 and well below expectations of 75. On the earnings front, Intel (NASDAQ:INTC) is down 6.3 percent and the biggest loser in the Dow after the world’s largest chipmaker reported better-than-expected fourth quarter earnings, but offered in-line guidance for the first quarter. Capital One (NYSE:COF), Johnson Controls (NYSE:JCI) and Suntrust (NYSE:STI) are also down on earnings. Morgan Stanley (NYSE:MS), GE, and Schlumberger (NYSE:SLB) moved higher. Elsewhere, most of Asia’s equity markets post gains after data showed acceleration in China’s economy. European markets are mixed and the euro has given back .7 percent to 1.3239 on the dollar. Crude oil prices slipped 48 cents to $95.46 per barrel and gold gave up $3.4 to $1687.4. On Wall Street, the Dow Jones Industrial Average is down 6 points and moved off session lows heading into midday on headlines that Republicans are looking to extend a debt ceiling deadline to mid-April. The NASDAQ lost 11.5 points. CBOE Volatility Index (.VIX) is down another .48 to 13.09 and falling to new multi-year lows. Overall trading in the options market is active due to the expiration, with about 5 million calls and 3.5 million puts traded through 11:30am ET.

Bullish Flow
Sears Holdings (NASDAQ:SHLD) is off 24 cents to $45.37 and longer-term spread traders are showing interest in the retailer again today. The focus is on the call options that expire in Jan 2015. Recent trades include a block of 10,000 Jan 60 calls for $6.80 and 10,000 Jan 70 calls at $4.30. The spread, for $2.50, has now traded 30,000X and the activity looks similar to the action seen early in the week, when 30,000 of the same spread traded Monday and open interest in both contracts increased by 30,000. So, today’s action possibly adds to that open interest which is already the largest blocks of open interest in Sears options today. The positioning seems to reflect confidence that shares of the retailer will be moving higher over the next two years.

Applied Materials (NASDAQ:AMAT), a semiconductor equipment-maker, is seeing a second day of active trading. As noted in yesterday’s midday update, April 12 calls on the stock were busy Thursday. The stock is up 46 cents to $12.86 on very heavy turnover of 26 million shares today. Meanwhile, 50,000 calls and 12,000 puts traded on the ticker. January 12.5 calls are the most actives and maybe seeing some liquidating trades ahead of the expiration, as the contract is now 36 cents in-the-money and has more than 40,000 contracts in open interest. 12,700 changed hands. February $13, April $13, July 12, and July $13 calls on AMAT are seeing active trading as well, but with no obvious headlines to explain the heightened activity. Earnings due out mid-Feb.

Bearish Flow
Advanced Micro Devices (NYSE:AMD) is down 20 cents to $2.54 in active trading of 18 million shares in the wake of Intel’s earnings report and ahead of the chipmaker’s results, due out Tuesday after the closing bell. 21,000 puts and 7,340 calls traded in AMD today. February 3 puts, which are already 46 cents in-the-money, are the most actives. More than 10,000 traded against 766 in open interest. The top trade is a 2100-lot for 50 cents per contract when the market was 46 to 50 cents. February 2 and 2.5 puts on AMD are also seeing interest today and implied volatility in the options on the stock moved up 5.5 percent to 72.

Huntsman Chemical (NYSE:HUN), a Salt Lake City, UT chemicals company, is off 17 cents to $17.52 and some investors are showing interest in the May $12 puts on the stock today. One investor bought 17,500 contracts for 20 cents per contract, according to a source on the exchange floor. More than 21,000 now traded against 810 in open interest. It’s not clear what is motivating the interest, as there doesn’t appear to be any news on the stock. $12 puts on HUN are currently 31.5 percent out-of-the-money.

Unusual Volume
Morgan Stanley (NYSE:MS) options volume is running 2X the (22-day) average, with 148,000 contracts traded and call volume accounting for 55 percent of the volume.

Applied Materials (NASDAQ:AMAT) options volume is 4X, the average daily, with 60,000 contracts traded and call volume representing 80 percent of the activity.

Focus Media (NASDAQ:FMCN) options volume is running 2.5X the average daily, with 39,000 contracts traded and call volume accounting for 95 percent of the activity.

Increasing options activity is also being seen in Capital One (NYSE:COF), General Dynamics (NYSE:GD), and Monster Beverage (NASDAQ:MNST).

Implied Volatility Mover
Implied volatility in the options on Monster Beverage (NASDAQ:MNST) is moving higher, as the stock comes under fire Friday. The stock is down $2.28 to $47.56 in very brisk trading of 3.6 million shares. By way of comparison, typical share volume in MNST through midday is 700,000. At the same time, 22,000 puts and 7,000 calls traded on the stock, which is 8X the daily average. Jan 47.5 puts, which are 6 cents out-of-the-money and expiring after today, are the most active. 7,500 traded. Feb 50 calls and Feb 45 puts are the next most actives and implied volatility in MNST options moved up 27 percent to 49.

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