Hot Option Plays: Alcoa Beats

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Cusick’s Corner 04-10-2012
It was a down day and a convincing one at that, but did not appear to be one filled with panic. The S&P 500 cash index, SPX, did slice the 50 day moving average and many Tech names were taking on some selling into the close. However, earnings season just kicked off with Alcoa (NYSE:AA) reporting on the positive side and I believe that this may give a small boost to some bulls. This could be an interesting open tomorrow but barring a big headline out of the EU overnight, there could be a potential bounce early. See you Midday.

Concerns about the debt crisis triggered an uptick in volatility Tuesday. European equity markets suffered steep losses after yields in Spain rose to 5.9 percent and levels not seen since before the ECB injected about $1.3 trillion in the banking system through LTRO. The concern is that the debt crisis is still deepening and Europe’s finance ministers are becoming helpless in ameliorating the situation, which threatens growth in the region, their banking system, and the global economy. Italy’s FTSE MIB Index tumbled 5 percent and Spain’s IBEX lost 3 percent. The only domestic stat of the day was a report on Wholesale Inventories, which showed a .9 percent increase in February and .4 percent more than expected. The primary concerns were about the Eurozone, however. Crude oil is down another $1.2 to $100.80 per barrel, but gold gained $19 to $1663 an ounce. Heading into the final hour, the Dow Jones Industrial Average is down 203 points and falling for a fifth consecutive trading session. The NASDAQ is off 52.5 points.

Bullish
Jaguar Mining (JAG) saw a flurry of activity amid strength in the sector Tuesday. PHLX Gold and Silver Mining Index (.XAU) is up .86 to 166.83 after gold erased early losses and is now up $19 to $1663 an ounce. JAG is up 15.1 percent to $4.63 on heavy volume of 8.2 million shares. By way of comparison, typical volume in the Brazilian miner is about 1.7 million. Meanwhile, options volume is running 7X the daily average. 35,000 calls and 5,400 puts traded on the stock so far. June 9 calls, which are still 94.4 percent out-of-the-money, are the most actives. 8,600 traded. Apr 5 and 6 calls are seeing a high volume as well. Some investors may be possibly taking positions in upside calls on JAG on hopes the stock can continue to run higher in the days/weeks ahead. Prior to today, shares were down 37.3 percent year-to-date and falling to 52-week lows of $4 per share.

Bullish trading was also seen in Intel (NASDAQ:INTC), United Technologies (NYSE:UTX), and IAM Gold (NYSE:IAG).

Bearish
SirusXM Radio (NASDAQ:SIRI) saw very high options volume Tuesday. Shares of the satellite radio operator lost a dime to $2.22 and options volume on the stock was 14X the daily average, with 225,000 calls and 2,850 puts traded in the name. Most of the activity was due to spread trading. For example, in morning action, 43,800 January $2 calls traded on SIRI at 49 cents and 43,800 January2014 $2 calls traded at 64 cents. The spread was apparently being sold at 15 cents and the activity is probably rolling. That is, the investor is buying to close the Jan 2 calls and opening a new position in the 2014 calls with the same strike. The spread traded 70,000X on the day and seems to express the view that shares have limited upside, and might even dip back below $2, through mid-January 2014. A shareholder might have initiated the trade as part of a buy-write or covered call play on SIRI.

Bearish trading was also seen in Comcast (NASDAQ:CMCSA), Ares Capital (NASDAQ:ARCC), and Syntas Pharmaceuticals (NASDAQ:SNTA).

Index Trading
CBOE Volatility Index (.VIX) is moving. The index added 1.66 to 20.47 and is on an eight-day 32.1 percent run higher. The index, which tracks the expected volatility priced into S&P 500 options, moved higher after the S&P lost 23.61 points to 1,358.59. Meanwhile, trading in the VIX options pit was busy Tuesday. 380,000 calls and 148,000 puts traded on the VIX today. The top trades of the day were part of a spread, with one investor apparently was selling 13,150 May 23 calls and buying 13,150 Apr 22 calls. The activity looks like a roll, or closing out position in April options, which expire in a week, while opening a new one in the May 23 calls. The investor might have sold the Apr 22 calls on the view VIX would settle below 22 at the April expiration. They are now adjusting the position given the recent run-up in the index.

ETF Action
Options on the SPDR Metals and Mining Fund (XME) were busy today. Shares, which represent ownership in a basket of different names from related industries, lost 55 cents to $46.91 and options volume was 3X the daily average. 52,000 puts and 9,380 calls traded in the product today. The largest trade in that name today appears to have been a 10,500-contract block of April 43 puts traded in morning action for 35 cents per contract. The next biggest trade was 9,822 April 44 puts for 39 cents. Both traded on the International Securities Exchange and were apparently bought-to-open, according to data from the ISE. If so, it’s a bearish short-term play on the sector, as April options on equities and exchange-traded funds expire in 10 days.

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