Hot Option Plays: Watch China Overnight After Hours

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 01-17-2013 After Hours
Today was a win for the bulls. But Financials are in a different boat, with the banks having mixed results, it looks like this sector could be in for a bit of a consolidation. We could get some decent overnight action with China rolling out a ton of economic data. Positive data could be a small catalyst, and any GDP growth north of 7.4% could be one such catalyst. Watch the Michigan Sentiment, see if consumers continue consuming — payroll and employment data have been a driver. If incomes are growing as the data suggests, it should come out in the number. See you Midday.

Stock market averages finished with gains despite post-earnings losses in two big banking names and a disappointing reading on regional manufacturing. Bank of America (NYSE:BAC) lost 4.2 percent and was the Dow’s biggest loser in the wake of its earnings. Citi (NYSE:C) shares gave up 2.9 percent. Meanwhile, Philadelphia Fed Survey, a gauge of manufacturing in the area, fell to -5.8 in January and well below expectations of 5.2. However, the day’s other data was positive. Housing Starts improved to a 954,000 annual rate in December, from 851,000 and better than the 889,000 that was expected. At the same time, Jobless Claims fell to 335,000 last week, from 372,000 and also much better than the 370,000 that was expected. Elsewhere, trading was mixed across Asia’s equity markets, but European stock benchmarks finished mostly higher. The euro is up .65 percent to 1.3375 on the dollar. Crude oil gained $1.05 to $95.73 and gold added $4.5 to $1687.5. On Wall Street, the Dow Jones Industrial Average opened higher on the jobless claims and housing starts numbers. There was a bit of dip on the Philadelphia Fed, but gains were held through midday and another leg higher in afternoon trading helped lift the Dow to an 85-point gain on the day. The NASDAQ added 18.5 points.

Williams Companies (NYSE:WMB), a natural gas producer, saw unusually high options volume driven by spread trading Thursday. The stock was up 36 cents to $33.80 in relatively active trading of 6.9 million shares. Meanwhile, 166,000 calls and 3,250 puts traded in WMB options today. The biggest trades were part of an impressive spread in which the investor apparently bought 65,000 January 40 calls (that expire in 2014) for 86 cents and sold 65,000 Jan 45 calls at 16 cents. The spread, for 70 cents, traded 80,000X on the day and seems to reflect expectations that shares will be trading in the mid-40s or better by the January 2014 expiration.

Bullish trading was also seen in Gannett (NYSE:GCI), IAM Gold (NYSE:IAG), and Applied Materials (NASDAQ:AMAT).

NRG, a Princeton, NJ utility company, was up 42 cents to $23.68 and options volume on the stock was 3.5X the daily average, with about 11,000 puts and 2,700 calls traded in the name. The largest trade was a 6,000-lot of February 22 puts for 25 cents per contract when the market was 15 to 25 cents. In fact, most of the activity in NRG was in downside Feb 22 puts today, as 10,725 contracts traded against 329 in open interest. Shares have rallied more than 20 percent over the past two months and a shareholder might be taking positions in puts to help hedge the recent gains on concerns about a short-term pullback. February equity options expire in 29 days and the $22 put on NRG is now 7.1 percent out-of-the-money.

Bearish trading was also seen in Genco Shipping (NYSE:GNK), Hain Celestial (NASDAQ:HAIN), and Magna International (NYSE:MGA).

Index Trading
Trading in the index pits was busy today due to the expiration. 1.10 million calls and 916,000 puts traded across the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash products. Since the settlement values for SPX and many other stock index options are computed on Friday morning before expiration Saturday, the last day to trade the expiring options is on Thursday. Consequently, while the high volume day for equity and ETF options is typically expiration Friday, volume often picks up in the index market on the Thursday prior, which was today. Meanwhile, the S&P 500 Index rose 8.31 points to 1,4801.94 and notched five-year highs and VIX fell to new five-year lows, but recovered and added .15 to 13.57.

ETF Action
Weekly $150 calls, which expire 1/25, on the SPDR 500 Trust (SPY) were the day’s most actively traded options contract. SPY added 95 cents to $148 and almost 200,000 of these Weekly 150 calls changed hands. According to a source on the exchange floor, one investor bought a hefty block of 100,000 contracts for 16.5 cents per contract midday. The activity seems to reflect expectations for further gains for the S&P 500 next week. For if SPY settles for $150 or less at the end of next week, which is $2 and 1.4 percent above current levels, the 150 calls that expire on 1/25 will be worthless.

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