Hot Option Plays: Retail Number Solid

OptionsXpress
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Cusick’s Corner 05-15-2012
Retail Sales came in strong when you strip out the auto sales component which catalyzed the sector, XRT/XLY are leading the push to the upside and are outpacing the overall market by almost 3X. The action in Crude, USO, is less bullish; support has been broken, 36.40 on USO, and is now solid resistance. If the Dollar picks up any strength then this could potentially catalyze the downside pressure.

Stock market averages are holding modest gains with help from economic data Tuesday. The underlying tone of trading remained cautious early amid headlines about the ongoing political impasse in Greece. The news is weighing on European equity markets again today. Spain’s IBEX lost 1.6 percent and Italy’s MIB Index fell 2.6 percent. Positive domestic economic data helped to offset some of the worries about the unfolding debt crisis in Europe. Data released early showed Retail Sales up .1 percent in April, which was only slightly less than the .2 percent that was expected. The Consumer Price Index [CPI] was flat last month and in-line with economist forecasts. However, the NY Empire State Index, a gauge of regional manufacturing activity, rose to 17.1 in May, from only 6.6 and better than the 8.4 that was expected. NAHB’s Homebuilder Sentiment Index was up to five-year high of 29 in May, from 25 last month and also much better than the 26 that was anticipated. Meanwhile, crude oil slipped another 27 cents to $94.51 and gold edged down $3.4 to $1557.6. However the Dow Jones Industrial Average shook off morning weakness and is up 51 points. The NASDAQ added 25. CBOE Volatility Index (.VIX) is down .92 to 20.95. Trading in the options market is active and continues to reflect a cautious underlying tone, with approximately 3.8 million calls and 4.2 million puts traded across all the exchanges through 12:00pm ET.

Bullish Flow
Pandora Media (P) is seeing strength and active trading Tuesday. The stock is up 69 cents to $10.51 in brisk trading of 3 million shares and has now jumped 21.6 percent over the past six trading sessions. Meanwhile, call volume is outpacing put volume in Pandora ten-to-one. Roughly 22,000 calls and 2,200 puts traded on the stock so far. June 11 calls, which are now 4.7 percent out-of-the-money and expiring in 34 days, are the most actives. 7,310 traded. May 9, May 11, Jun 9, Jun 10 and Jun 12 calls are seeing interest as well and levels of implied volatility have moved up 3 percent to 89. Prior to the recent rally, Pandora had suffered a two-month slide and lost nearly 40 percent. Some players in the options market are possibly taking positions in call options on the view the stock will continue to recover some of the losses in the days/weeks ahead. May options expire at the end of this week. The company will report earnings on May 23, which is outside of the May expiration.

Renren (RENN), a Chinese Internet company, is up 56 cents to $6.05 in active trading of 13 million shares and options on the stock are busy today after the company reported earnings and revenues that beat analyst estimates. 18,000 calls and 5,080 puts traded on Renren so far. Some investors are possibly looking for the rally to continue through the rest of the week, as May 6 and 7 calls are the most actives in RENN today.

Bearish Flow
Lowe’s (NYSE:LOW) loses 23 cents to $29.33 in active trading of 14 million shares and options order flow on the home improvement retailer includes 12,000 puts and 2,600 calls through midday. The stock fell in sympathy with Home Depot (NYSE:HD), which is down 1.7 percent and the Dow’s biggest losers on earnings news. Lowe’s is due to report earnings on May 21 and it seems that some players in the options market are turning cautious ahead of the results. 14,000 calls and 25,000 puts traded in Lowe’s already today, which is 4.5X the daily average. October 30 puts and calls are the most actives. May 28, 29 and 30 calls, which expire before Lowe’s reports earnings, are busy as well.

Joy Global (JOY), a Milwaukee, WI farm and construction machinery company, is down $1.56 to $62.11 in active trading of 1.3 million shares and has now suffered a 32.3 percent slide since February 28. Some investors seem concerned about the risks of further losses in JOY shares, as 13,000 puts and 2,800 calls have traded on the stock so far today. July 57.5 and 65 puts are the most actives. The company is due to report earnings on May 31.

Unusual Volume
PowerShares Bullish Dollar Fund (UUP) options volume is running 36X the (22-day) average, with 133,000 contracts traded and call volume accounting for 99 percent of the volume.

Groupon (GRPN) options volume is 3X the average daily, with 91,000 contracts traded and call volume representing for 50 percent of the activity.

Home Depot (NYSE:HD) options volume is running 3X the average daily, with 64,000 contracts traded and put volume accounting for 64 percent of the activity.

Increasing options activity is also being seen in Pandora Media (P), iStar Financial (NYSE:SFI), and iShares Japan Fund (EWJ)

Implied Volatility Mover
Groupon (GRPN) is up $1.44 to $13.18 in very brisk trading of 16 million shares after the company reported earnings after the closing bell yesterday. Options volume is interesting, as 50,000 calls and 50,000 puts have traded on the stock through midday, which is 3.5X the daily volume. Players in the options market are jockeying for position in anticipation of the stock’s next short-term move, as May 13 puts and 14 calls are the most actives in GRPN today. Others might be selling premium on the heels of the post-earnings rally and implied volatility in the options on the stock is down 31 percent to 99.

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