Hot Option Plays: Is AAPL Succumbing To Gravity?

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Cusick’s Corner
Overnight action was uneventful; the data this morning was in-line with expectations. Equities are at their best levels and the bonds have now slid back off their mid morning highs. The Dollar, UUP, has pulled off and this has allowed Gold, GLD, to bounce to its best levels. Now, here’s what is making the longs look like my kids on Red Bull — the Fed sounds like they are not planning on QE3, and yields are popping which confirms that the long bond holders are sensing this as well. This will be something to watch because if this cash is coming out of bonds, it has to be put to work somewhere… I will also be watching AAPL move, it has come under pressure into the Midday. See you After Hours.

Stock market averages are moving to new multi-year highs with help from economic data Thursday. A report released before the opening bell on Wall Street showed Weekly Jobless Claims falling by 14,000 in the period ended March 10. Economists were looking for a smaller decline of 10,000. Separately, the Labor Department also reported that the Producer Price Index [PPI] was up .4 percent in February, which was .1 percent less than expected. A third report released later showed the Philadelphia Fed Survey of manufacturing activity at 12.5 in March, which was up from 10.2 last month and in-line with estimates. Stock market averages ticked higher on the data and are holding gains through midday. Gold, which suffered a steep loss Wednesday, has recaptured $14 to $1657 today. Crude oil has seen whippy trading, after falling on reports the UK and US were set to tab strategic reserves. However, US officials are denying the reports. Crude, which hit a low of $103.93, has rebounded and is now down 33 cents to $105.10 per barrel. Meanwhile, the Dow Jones Industrial Average is up 42 points and not far from session highs. The tech-heavy NASDAQ gained 16.6 points. CBOE Volatility Index (.VIX) is down .21 to 15.10 amid heavy options-expiration related trading. 7.3 million calls and 5 million puts traded through 1:00 pm ET.

Bullish Flow
Akamai (NASDAQ:AKAM), a Cambridge, MA Internet company, is trading up 63 cents to $37.29 and options action is picking up in the stock today. 12,000 calls and 1,180 puts traded in the name so far, which is a ratio of more than ten-to-one. April 40 calls, which are 7.3 percent out-of-the-money and expiring in 36 days, are the most actives. 4,938 traded. 56 percent of the volume hit at the offer and open interest is 543. So it appears that some call buyers are active in the name and may be opening new positions Thursday. April 41 and March 37 calls on AKAM are actively traded as well. There’s no news on the stock to explain the heightened activity in the name. The stock was up 10.5 percent on Feb 9 after earnings were reported and have more than doubled off the Oct 3 lows. Today’s order flow in AKAM options seems to reflect expectations for additional gains in the weeks ahead.

Intermune (NASDAQ:ITMN) is up on heavy volume after a German agency said the company’s pulmonary fibrosis treatment is proving to show benefits. ITMN rallied $1.11 to $15.91 on volume of 7.2 million shares. Typical volume through midday is about 850,000. Meanwhile, 12,000 calls and 5,760 puts traded on the stock so far. One interesting trade is an April 16 – 20 (1X2) call ratio spread. In this advanced options strategy, the investor bought 1,200 April 16 calls on ITMN for $1.76 per contract and sold 2,400 April 20 calls at 58 cents. The Apr 17 – 20 ratio spread, for a $1.60 net debit, appears to be a view that the stock may continue to recover recent losses and head towards $20 (+25.7%) through the April expiration. The stock is down nearly 70 percent from the highs seen in the spring of last year.

Bearish Flow
Citigroup (NYSE:C) is up $1.18 to $36.28 on heavy volume of 39 million shares and has recovered nearly all of the losses from the day before. Citi shares lost $1.24 Wednesday following Tuesday’s release of bank stress-results. Options on the bank are actively traded Thursday as well. 113,000 calls and 145,000 puts traded in the name so far. The top trades are part of a spread, in which the investor sold 22,000 March 35 puts on Citi at 10 cents per contact and bought 15,000 Weekly (3/23) 35 puts for 43 cents. The spread is possibly a roll. That is, the strategist is selling March puts to close a position ahead of the expiration. However, if they are opening a new position in the Weekly puts that expire at the end of next week, they may be preparing for potential losses in the stock in the days ahead. A shareholder might have initiated the spread to adjust a hedge.

Speaking of banks, the SPDR Regional Banking ETF (KRE) sees high put volume today. Shares are notching new 52-week highs today and were recently up 47 cents to $28.74. Meanwhile, 58,000 puts and 915 calls traded on the exchange-traded fund today. Much of the activity is due to spread trading. One investor bought 14,000 June 28 puts on KRE for $1.21 and sold 14,000 June 20 puts at 9 cents. The Jun 20 – 28 put spread, for a $1.12 net debit, has traded more than 28,000X on the day and appears to be a view that KRE may give back some of its recent gains between now and June. The ETF has surged nearly 55 percent off early-October lows.

Unusual Volume
Barrick Gold (NYSE:ABX) options volume is running 2.5X the (22-day) average, with 88,000 contracts traded and call volume accounting for 70 percent of the volume.

SPDR Technology Fund (XLK) options volume is 3X the average daily, with 64,000 contracts traded and call volume representing for 97 percent of the activity.

SPDR Regional Banking ETF (KRE) options volume is running 8X the average daily, with 59,000 contracts traded and put volume accounting for 99 percent of the activity.

Increasing options activity is also being seen in Peabody Energy (NYSE:BTU), Teekay Shipping (NYSE:TK), and Ctrip (NASDAQ:CTRP)

Implied Volatility Mover
Implied volatility in options on Oracle (NASDAQ:ORCL) is moving up amid active trading and ahead of a March 20 earnings report. ORCL shares are up 14 cents to $29.98 and options volume on the software-maker through midday includes 32,000 calls and 13,000 puts. April 30 calls are the most actives. 10,590 traded. March 30 puts and calls, which are nearly at-the-money heading into tomorrow’s expiration, are busy as well. Meanwhile, levels of implied volatility are moving up 28 percent to 35 ahead of the earnings release. The stock tumbled 11.7 percent on 12/21 after earnings were last reported.

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