Hot Option Plays: Watch The Aussies

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Cusick’s Corner 03-05-2012
The market stayed in the red but the bid did start to pick up the bottom into the After Hours. The Small Caps, IWM/RUT, were able to firm up and bounce into the After Hours, which at the bare minimum gave pause for the lack of a bid. I will be watching the overnight action especially with the Aussies potentially moving rates, this will be very interesting because Australia is a heavy commodities economy and anything negative may have ripples. See you Midday.

Market action was sluggish on concerns about the global economy Monday. Bad news surfaced overseas before the opening bell on Wall Street after China lowered its official GDP forecast and data on manufacturing in Italy and Spain fell well short of estimates. The disappointing news from other parts of the globe was partly offset by the latest ISM Services Index, which showed economic activity outside of manufacturing improving to 57.3 in February, from 56.8 the month before and better than the 56.0 economists had expected. Separate data on Factory Orders was down 1 percent in January and not as bad as the 1.9 percent that was expected. Yet, the Dow Jones Industrial Average had fallen into the red early in the day and market action was choppy through midday. Modest market strength in the final two hours helped lift the Dow off session lows into the close. At the end of the day, the industrial average was down just 15 points and roughly 80 points off its worse levels. Still, the NASDAQ gave up 25.7 points and the S&P 500 dipped 5.3 points.

Bullish
Sino Clean Energy (SCEI) has been rallying over the past few days after Thornhill Capital concluded a review of the company’s financials and said the filings were accurate. Shares of the Chinese alternative energy company gained 41 cents to $3.17 on heavy volume of almost 5 million shares and have surged 111.3 percent since Wednesday. Some options traders seem to have taken notice of the three-day rally and were active in call options on SCEI Monday. 5,470 calls and 970 puts traded on the stock. By way of comparison, typical volume in SCEI is less than 300 contracts. March 3, March 4, April 3, June 3 and September 2 calls were the most actives. Meanwhile, levels of implied volatility in SCEI options rose 4 percent and remain elevated at 128, suggesting the options market is possibly anticipating additional large swings in the share price in the weeks ahead.

Bullish trading was also seen in Gamestop (NYSE:GME), Sprint Nextel (NYSE:S), and Pandora Radio (P).

Bearish
Put volume is picking up in Tibco Software (NASDAQ:TIBX). Shares lost 77 cents to $28.51 and were relatively weak Monday on robust volume of 2.4 million shares. Meanwhile, 11,000 calls and 1,900 puts traded on the Palo Alto, CA business software developer. May 27 puts, which are 5.3 percent out-of-the-money, were the most actives. 2,870 traded. May 22, 23, 24, 25, 26 and 28 puts on TIBX were busy as well. It’s not clear what was driving the heavy volume in May puts on the stock, as there was no news on Tibco today. Yet, implied volatility in the options on the stock was up 7.5 percent to 35.5, as some investors might be anticipating volatility in the stock when earnings are reported later this month. However, shares have seen post-earnings gains after each of the past four earnings reports, including an 8 percent rally on 12/22.

Bearish trading was also seen in Suntrust Banks (NYSE:STI), RR Donnelley (NYSE:RRD), and Chelsea Therapeutics (NASDAQ:CHTP).

Index Trading
414,000 calls and 502,000 puts traded on the S&P 500 Index (.SPX), the S&P 100 Index (.OEX) and other cash index products Monday, which is only about 70 percent the recent average daily levels, according to Trade Alert data. Yet, while volume was light, there was a modest uptick in volatility. The S&P 500 index (.SPX) traded in a 10-point range and lost 5.30 points to 1,364.33. Market breadth was negative. 314 S&P stocks traded lower and 184 moved higher. CBOE Volatility Index (.VIX), which tracks the expected volatility priced into S&P options, hit a morning high of 18.90 and finished up .76 to 18.05. Trading in the VIX pit was very light to start the week. 186,000 calls and 74,000 puts. That, however, might change later in the week ahead of key events like jobs reports Friday and an FOMC meeting next Tuesday. The Quadruple Witch expiration in 11 days might stir up a bit more volume and volatility as well.

ETF Action
iShares Emerging Markets Fund (EEM) saw active trading Monday. Shares lost 77 cents to $43.87 in active trading of almost 50 million shares after disappointing economic data from China triggered an uptick in volatility within some of the emerging markets Monday. Meanwhile, 763,000 options traded on EEM. The volume consisted of 587,000 puts and 176,000 calls. March 38, March 42.5, April 38, and April 43 puts were the most active and implied volatility in the ETF, as measured by the VXEEM Index, was up .65 points to 26.38.

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