Hot Option Plays: A Day At The Range

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Cusick’s Corner 03-07-2012
Nice bounce into the Midday but not the conviction, i.e. light volume, that would show that this is a one and done pullback. We are now in a trading area called “no man’s land”, an area that tennis players have heard before. This is where we do not know if we want to go long or short, in tennis this is where you could try to volley or hit a ground stroke. The fortunate part is that, unlike a tennis player, we can use this action to our advantage, especially if we see a range being established. With the pullback yesterday and now this pop in price and volatility, condor and butterfly traders may be seeing some potential opportunities. This is what I am focused on looking for today. See you After Hours.

Stock market averages are holding gains after the steep losses suffered Tuesday. Steady trading across the Eurozone, including a .9 percent advance in France’s CAC 40 Index, helped to ease some of the anxiety caused by the high levels of volatility yesterday. The CAC 40 and Germany’s DAX both sank more than 3 percent Tuesday on fears about the unfolding debt problems facing Greece. However, reports that the country’s Private Sector Involvement [PSI] program was seeing increasing participation from creditors Wednesday is perhaps easing some of the recent worries about a messy Greek debt default. The euro, which was trading below 1.31 early in US trading, is now up .3 percent to 1.315 against the buck. Reports that the Fed is mulling another bond buyback program seem to be helping sentiment as well. On another positive note, ADP reported that the economy added 216,000 private sector jobs in February, which was in-line with economist estimates. The Dow Jones Industrial Average opened higher with help from the data and, after a 204-piont tumble Tuesday, is up 70 points at midday. The NASDAQ gained 27 and erased 67 percent of yesterday’s loss. CBOE Volatility Index (.VIX) gave back 1.42 to 19.45. Trading in the options market is much slower than the day before, with 3.8 million calls and 3.3 million puts traded by 1:35pm ET.

Bullish Flow
Kinross Gold (NYSE:KGC) ticks three cents higher to $10.60 after gold prices gained $11 to $1783 an ounce Wednesday. Options order flow in the Toronto-based gold miner today is interesting, as 19,000 calls and only 590 puts traded in the name. April 11 calls, which are 3.8 percent out-of-the-money and expiring in 44 days, are the most actives. 8,590 traded. The action has been in smaller lots. The top trade is 450 contracts at the 39-cent asking price. The biggest trade in KGC today is a 3000-contract block of April 12 calls for 20 cents when the market was 10 to 20 cents. 8,500 traded. KGC May 13 calls are seeing interest as well and levels of implied volatility are moving up 4 percent to 40, as it appears that upside calls buyers are taking positions in KGC in anticipation of a move higher in the underlying stock in the weeks ahead. Shares have not performed well lately, however, and are down 38.6 percent since August.

Call options on Tyson Foods (NYSE:TSN) are busy for a second day. Increasing action in April 19, March 18 and 19 calls on TSN was highlighted in yesterday’s midday report. Shares are up 30 cents to $19.48 today and options volume is running 3.5X the daily average. 6,140 calls and 365 puts traded on the stock. Today’s action is focused on April 20, April 21, and October 21 calls. Like yesterday, it appears that some call buyers might be taking positions in TSN on the view the stock might head higher in the weeks ahead. Still no news on the ticker.

Bearish Flow
Yahoo (NASDAQ:YHOO) adds 24 cents to $14.66 and put options on the Internet giant are actively traded through midday Wednesday. 27,000 puts and 17,000 calls traded on YHOO so far. The top trade is a 10,000-contract block of July 12 puts traded at the 29-cent asking price. 19,300 July 12 puts have now changed hands on Yahoo against 12,517 in open interest. The contract is 18.1 percent out-of-the-money and expires in 135 days. The stock hasn’t performed well lately – down 5.4 percent since January. The action in YHOO April 12 puts might reflect expectations for additional weakness in the months ahead. Web blog AllthingsD is reporting today that Yahoo’s high-ranking product executive Bill Shaughnessy is leaving the company.

H&R Block (NYSE:HRB) is off 9 cents to $15.90 and options volume on the tax preparation company is running 2X the daily average, with 3,840 puts and 565 calls traded on the ticker through midday. March 15 puts, which are 5.7 percent out-of-the-money and expiring at the end of next week, are the most actives. 2,900 traded. January 15 puts are seeing some interest as well. Some investors might be buying downside puts to hedge their stock positions ahead of H&R Block’s earnings report, which is due out after the closing bell today. Implied volatility in HRB options is moving up 4 percent to 40.5 ahead of the news.

Unusual Volume
Corning (NYSE:GLW) options volume is running 2.5X the (22-day) average, with 51,000 contracts traded and call activity accounting for 84 percent of the volume.

Valero (NYSE:VLO) options volume is 3.5X the daily average, with 37,000 contracts traded and call volume representing 67 percent of the activity.

Alexza Pharmaceuticals (NASDAQ:ALXA) options volume is running 4X the average daily, with 33,000 contracts traded and call volume representing 99 percent of the total volume.

Increasing options activity is also being seen in Lowe’s (NYSE:LOW), Ciena (NASDAQ:CIEN), and McKesson (NYSE:MCK).

Implied Volatility Mover
Implied volatility in the options on Kraft Foods (NYSE:KFT) is moving higher, as the stock moves lower Wednesday. KFT is down 1.3 percent to $37.77 and the biggest loser in the Dow Jones Industrial Average through midday after a Wall Street analyst cut the stock to Hold from Buy. Options on the food company are more active than usual. 4,900 puts and 1,900 calls traded in the name so far. March and April 37 puts are the most actives. Meanwhile, implied volatility in KFT options, which fell to 52-week lows of only 11 percent on 2/24, is up 7.5 percent to 13.5 Wednesday.

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