Hot Option Plays: Pipeline Headlines Rattle Market

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Cusick’s Corner
Quite a way to end the day with the oil markets moving a $2 clip, 108-110 in Brent, as headlines raced across about pipelines being blown up and then being found untrue. To traders the move on the news in equities, S&Ps down to 1368, was a bit unexpected but the bid bit into the pull back right off the highs, 1375. There are some short term risks to the market, Iran, so this is yet another reason why one might want to strategize a scaling method into trades, i.e. 25% at a time, so that when headlines hit we can recover. See you Midday.

Stock market averages started the month of March with modest gains Thursday. Economic news was in focus early and included Jobless Claims, which declined by 2,000 to 351K last week and a bit better-than-expected. However, separate data showed January Personal Incomes and Spending up .3 percent and .2 percent, respectively. Economists were looking for increases of .4 percent in both spending and incomes. Two separate reports released at 10:00am ET triggered a bit of selling in the equity market. Construction Spending fell .1 percent in January. Economists were expecting an increase of 1 percent. Meanwhile, the ISM Index of manufacturing activity was down to 52.4 in February, from 54.1 in January and worse than the 54.7 that was expected. However, the selling never gathered any momentum. February monthly sales results helped a number of retailers, like Gap Stores (NYSE:GPS), Ann Taylor (NYSE:ANN), and Macy’s (NYSE:M). Shares of Ford (NYSE:F) and GM were also up on higher monthly sales numbers. Some of the midday gains were pared in afternoon-action, however, on reports of a Saudi pipeline fire. The news sent crude beyond $110 per barrel and the Dow Jones Industrial Average gave back some of its earlier advance. However, at the closing bell, the Dow held on to a 28-point gain. The NASDAQ added 22 points.

Bullish
Options on Las Vegas Sands (NYSE:LVS) were actively traded Thursday. Shares of the casino-operator notched new 52-week highs and finished up $1.21 to $56.82. Meanwhile, 43,000 calls and 20,000 puts traded in LVS options. The top trade of the day was a June 55 – 62.5 call spread at $3, 4000X. The strategist apparently sold 4,000 June 55 calls at $4.65 and bought 4,000 June 62.5 calls for $1.65. The spread might roll a position up in strikes. June 55 calls have 14,496 in open interest and are 3.2 percent in-the-money after today’s move. The spread trader might have sold to close a position in 4000 contracts, while buying to open a new position in an equal number of out-of-the-money June 62.5 call options. LVS is up 33 percent year-to-date and rolling up in strike prices in June call options on the stock probably reflects expectations for additional gains in the months ahead.

Bullish trading was also seen in Monster Worldwide (MWW), DISH Networks (NASDAQ:DISH), and Canadian Railway (NYSE:CP).

Bearish
Toronto Dominion Bank (NYSE:TD) shares rallied $1.63 to $83.15 and touched new 52-week highs today after the Canadian bank reported strong earnings and also announced a dividend increase. TD is now up 11 percent year-to-date. One player in the options market might be looking to hedge recent gains in the stock, as an April 70 – 80 put spread was bought on the bank for 90 cents, 7000X. A source on the options exchange informs us the investor bought 7,000 April 80 puts on TD for $1.05 and sold 7,000 April 70 puts at 15 cents, which sets up a bearish play with a max payout if shares tumble to $70 or less through the expiration, which represents a 15.8 percent slide in the next seven weeks.

Bearish trading was also seen in First Solar (NASDAQ:FSLR), Waste Management (NYSE:WM), and Iron Mountain (NYSE:IRM).

Index Trading
It’s been a relatively slow week in the index market, as stock market averages have been mostly range-bound in recent days. 386,000 calls and 617,000 puts traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and other cash index products Thursday, which is only about 80 percent the recent average daily levels, according to Trade Alert data. The S&P 500 traded in a 10-point range and added 8.41 points to 1,374.09. The index is up .6 percent on the week. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, lost 1.17 to 17.26. Many traders are now wondering if VIX will move back towards 20 anytime soon, or is a move to 15 more likely in the current environment? Today’s most actively traded index contract is the March 17 put on the VIX, which could be a sign that some investors believe a move to the mid-teens is in the cards.

ETF Action
Energy Select Sector Fund (XLE) gained 72 cents to $75.60 and was helped higher by rising crude oil prices Thursday. Crude topped more than $110 per barrel in electronic trading late in the day on reports of a fire along a Saudi pipeline. XLE, which holds shares of all the energy-related names from the S&P 500, also ticked higher and options volume in the ETF hit 2.5X the daily average. A massive spread surfaced in options on the fund in afternoon action. One investor sold 19,000 XLE Mar 72.5 puts at 35 cents, bought 19,000 XLE March 76 calls for 90 cents and sold 38,000 March 79 calls at 12 cents. In other words, March 72.5 puts were sold to buy a March 76 – 79 (1X2) call ratio spread. The position has a bullish risk-graph with a max payout if XLE settles at $79 at the March expiration, which represents a 4.5 percent gain over the next two weeks.

Cusick’s Corner
Quite a way to end the day with the oil markets moving a $2 clip, 108-110 in Brent, as headlines raced across about pipelines being blown up and then being found untrue. To traders the move on the news in equities, S&Ps down to 1368, was a bit unexpected but the bid bit into the pull back right off the highs, 1375. There are some short term risks to the market, Iran, so this is yet another reason why one might want to strategize a scaling method into trades, i.e. 25% at a time, so that when headlines hit we can recover. See you Midday.

Stock market averages started the month of March with modest gains Thursday. Economic news was in focus early and included Jobless Claims, which declined by 2,000 to 351K last week and a bit better-than-expected. However, separate data showed January Personal Incomes and Spending up .3 percent and .2 percent, respectively. Economists were looking for increases of .4 percent in both spending and incomes. Two separate reports released at 10:00am ET triggered a bit of selling in the equity market. Construction Spending fell .1 percent in January. Economists were expecting an increase of 1 percent. Meanwhile, the ISM Index of manufacturing activity was down to 52.4 in February, from 54.1 in January and worse than the 54.7 that was expected. However, the selling never gathered any momentum. February monthly sales results helped a number of retailers, like Gap Stores (NYSE:GPS), Ann Taylor (NYSE:ANN), and Macy’s (NYSE:M). Shares of Ford (NYSE:F) and GM were also up on higher monthly sales numbers. Some of the midday gains were pared in afternoon-action, however, on reports of a Saudi pipeline fire. The news sent crude beyond $110 per barrel and the Dow Jones Industrial Average gave back some of its earlier advance. However, at the closing bell, the Dow held on to a 28-point gain. The NASDAQ added 22 points.

Bullish
Options on Las Vegas Sands (NYSE:LVS) were actively traded Thursday. Shares of the casino-operator notched new 52-week highs and finished up $1.21 to $56.82. Meanwhile, 43,000 calls and 20,000 puts traded in LVS options. The top trade of the day was a June 55 – 62.5 call spread at $3, 4000X. The strategist apparently sold 4,000 June 55 calls at $4.65 and bought 4,000 June 62.5 calls for $1.65. The spread might roll a position up in strikes. June 55 calls have 14,496 in open interest and are 3.2 percent in-the-money after today’s move. The spread trader might have sold to close a position in 4000 contracts, while buying to open a new position in an equal number of out-of-the-money June 62.5 call options. LVS is up 33 percent year-to-date and rolling up in strike prices in June call options on the stock probably reflects expectations for additional gains in the months ahead.

Bullish trading was also seen in Monster Worldwide (MWW), DISH Networks (NASDAQ:DISH), and Canadian Railway (NYSE:CP).

Bearish
Toronto Dominion Bank (NYSE:TD) shares rallied $1.63 to $83.15 and touched new 52-week highs today after the Canadian bank reported strong earnings and also announced a dividend increase. TD is now up 11 percent year-to-date. One player in the options market might be looking to hedge recent gains in the stock, as an April 70 – 80 put spread was bought on the bank for 90 cents, 7000X. A source on the options exchange informs us the investor bought 7,000 April 80 puts on TD for $1.05 and sold 7,000 April 70 puts at 15 cents, which sets up a bearish play with a max payout if shares tumble to $70 or less through the expiration, which represents a 15.8 percent slide in the next seven weeks.

Bearish trading was also seen in First Solar (NASDAQ:FSLR), Waste Management (NYSE:WM), and Iron Mountain (NYSE:IRM).

Index Trading
It’s been a relatively slow week in the index market, as stock market averages have been mostly range-bound in recent days. 386,000 calls and 617,000 puts traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and other cash index products Thursday, which is only about 80 percent the recent average daily levels, according to Trade Alert data. The S&P 500 traded in a 10-point range and added 8.41 points to 1,374.09. The index is up .6 percent on the week. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, lost 1.17 to 17.26. Many traders are now wondering if VIX will move back towards 20 anytime soon, or is a move to 15 more likely in the current environment? Today’s most actively traded index contract is the March 17 put on the VIX, which could be a sign that some investors believe a move to the mid-teens is in the cards.

ETF Action
Energy Select Sector Fund (XLE) gained 72 cents to $75.60 and was helped higher by rising crude oil prices Thursday. Crude topped more than $110 per barrel in electronic trading late in the day on reports of a fire along a Saudi pipeline. XLE, which holds shares of all the energy-related names from the S&P 500, also ticked higher and options volume in the ETF hit 2.5X the daily average. A massive spread surfaced in options on the fund in afternoon action. One investor sold 19,000 XLE Mar 72.5 puts at 35 cents, bought 19,000 XLE March 76 calls for 90 cents and sold 38,000 March 79 calls at 12 cents. In other words, March 72.5 puts were sold to buy a March 76 – 79 (1X2) call ratio spread. The position has a bullish risk-graph with a max payout if XLE settles at $79 at the March expiration, which represents a 4.5 percent gain over the next two weeks.

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