Hot Option Plays: Bulls Continue To Hold On

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Cusick’s Corner 01-12-2012
The strength of this trend today is getting more respect as we get through the midday trading hour. The market has been able to hold and even gain ground in spite of weak Retail Sales that were up .1%, and worse than expected claims, 399K. If we can see this move hold and push higher, upside could potentially gather some more steam. I will be watching the Dollar to see if continued strength in the buck sucks some steam out of the bid or if we are seeing that the inverse relationship, i.e. Buck up Stocks down, shifting where the market and the Dollar can rally together. This would only happen if we begin to see the EU markets starting to perform better. I will be watching to see if this latest rally gets hit into the After Hours, and if it breaks 1285, momentum gained this midday on the bid could be under pressure. See you After Hours.

Market action remains mixed despite disappointing economic data Thursday. According to a report released before the opening bell, Retail Sales rose just .1 percent in December. Economists were expecting an increase of .4 percent. Separately, the Labor Department reported that filings for jobless claims increased by 27,000 last week. Economists were looking for an increase of just 3,000. However, stock index futures were modestly higher before the opening bell on Wall Street despite the poor data. Then mixed trading quickly returned in morning action. Some of the focus is on the agricultural commodities. Wheat, corn, and soybeans are getting crushed on a bearish crop report. However, gold is up $14.4 to $1654 an ounce and crude gained 93 cents to $101.80 per barrel. The Dow Jones Industrial Average is down five points, but the tech-heavy NASDAQ added 6. CBOE Volatility Index (.VIX) is flat at 21.05. Overall options volume is running a bit higher than usual, with 4.3 million calls and 3.6 million puts changing hands by 12:30pm ET.

Bullish Flow
US Natural Gas Fund (UNG) is setting new all-time lows today. Shares, which track the commodity using futures contracts, are down 23 cents to $5.78 after bearish weekly inventory data sent natural gas prices sliding another 9 cents to $2.68. Natural gas prices are now down more than 40 percent since May and falling to their lowest levels since September 2009. Meanwhile, the top options trades in UNG today are blocks of July 10 calls on the stock traded at the 5-cent asking price. More than 23,000 traded total against 1,734 in open interest. Buying $10 calls on UNG might seem like a waste of money since the contract is 73 percent out-of-the-money. Keep in mind, however, shares of the ETF fetched more than $10 as recently as September of last year, or just four months ago.

Research In Motion (NASDAQ:RIMM) is seeing relative strength and increased options activity today. Shares of the Blackberry-maker added 58 cents to $16.19 on unconfirmed market speculation the company has hired an advisor to explore strategic alternatives, according to a recent article on TheStreet. So RIMM is up and options volume on the stock through midday includes 76,000 calls and 33,000 puts. The Weekly 16 calls, which are 19 cents in-the-money with one day of life remaining after today, are the most actives. More than 14,000 traded. Speculators are also showing interest in Jan 16 and 17.5 calls, which expire at the end of next week.

Bearish Flow
Wynn Resorts (NASDAQ:WYNN) shares are down $4.45 to $107.44 after a vice chairman filed a lawsuit seeking documents related to investments made by the company. A Sterne Agee analyst warned that the high profile lawsuit could hurt the stock. Shares of the casino operator are down on the news and options volume is running 3X the daily average, with 19,000 calls and 21,000 puts traded in WYNN so far. February 100 puts, which are now 6.9 percent out-of-the-money and expiring in 36 days, are the most actives. 4,600 traded. Some shareholders might be buying downside puts to hedge the risk of further losses in the stock in the weeks ahead.

Fastenal (NASDAQ:FAST) adds 78 cents to $46 and notches new 52-week highs today. Options volume on the Winona, MN construction and building company is running 4X the daily average. 7,900 puts and 950 calls traded on the stock so far. January 42.5 puts are the most actives. 5,564 traded. January 40 and 45 puts are seeing interest as well. Some investors might be buying puts to hedge recent gains in shares ahead of an earnings report. FAST is due to report on Jan 18, which is the Wednesday before options-expiration Friday.

Unusual Volume
US Natural Gas Fund (UNG) options volume is running 2X the (22-day) average, with 70,000 contracts traded and call activity accounting for 78 percent of the volume.

Moly Corp (MCP) options volume is 3X the daily average, with 15,000 contracts traded and call volume representing 69 percent of the activity.

Wynn Resorts (NASDAQ:WYNN) options volume is running 3X the average daily, with 38,000 contracts traded and put volume representing 54 percent of the total volume.

Increasing options activity is also being seen in Seagate Technology (NASDAQ:STX), Crocs (NASDAQ:CROX), and MannKind (NASDAQ:MNKD).

Implied Volatility Mover
Implied volatility in the options on Cheniere Energy (LNG) is moving sharply higher amid heavy trading in call options on the gas producer. The stock is seeing relative strength as well, up 58 cents to $9.65. 29,000 calls and 4,050 puts traded in LNG. Jan 10, Jan $12, Feb 10, and Feb $11 calls are the most actives. Upside call buyers are apparently taking positions in the name. It’s not clear what is driving the action, as there are no headlines on the ticker; but implied volatility in the options on the stock surged 20 percent to 81.5.

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