Hot Option Plays: Metals On The Move

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Cusick’s Corner 07-25-2012
After Apple’s (NASDAQ:AAPL) earnings miss, the “QE” chatter has been a dominant headline. At this stage I am blocking it out and focusing on the market environment and earnings. Volatility has ticked up but possibly not enough to make some premium sellers feel like they are being paid enough. Gold, GLD, & Silver, SLV, are markets that I am watching closely, both have spiked today. A lot of this is due to the potential of Fed intervention and if this unconfirmed Fed action does not come to fruition, well — 1650 on Gold and 27.50 on Silver might be battle zones. Keep an eye on these levels and make sure you are also managing any potential winners too. See you After Hours.

Market action is mixed and uninspired through midday. A number of widely-followed names, like Apple Computer (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Radioshack (NYSE:RSH), are seeing sizeable post-earnings losses on disappointing results. Upbeat guidance from blue chip names Boeing (NYSE:BA) and Caterpillar (NYSE:CAT) helped offset some of those worries. Yet, the economic news disappointed after New Home Sales declined to an annual rate of only 350K in June, down from 382K in May and well below expectations of 373K. Gold is a bright spot, gaining $25 to $1601 an ounce. Crude lost $1.30 to $87.20 on the heels of bearish weekly inventory data. Overseas, trading was also mixed. While Japan’s Nikkei lost 1.4 percent on the heels of yesterday’s volatile trading in the US, benchmarks across Europe are sporting modest gains after yields on Spanish and Italian debt moved off record highs. In the US, the Dow Jones Industrial Average is holding a 41-point. But the drop in Apple is weighing on the tech-heavy NASDAQ, which lost another 9.3 points. CBOE Volatility Index (.VIX) slipped .43 to 20.04. Trading in the options market is busy today, with about 3.3 million calls and 3.4 million puts traded across all the exchanges through 11:45am ET.

Bullish Flow
Omnivision Tech (NASDAQ:OVTI) sees relative strength and increasing call activity Wednesday. Shares hit a low of $11.93 after Apple’s earnings triggered a negative reaction in some of the company’s component suppliers. OVTI makes chips that powers cameras in high-end smartphones and tablets. After the initial morning decline, shares of the Santa Clara, CA semiconductor company started moving higher, however, and are now trading up 69 cents, or 5.7 percent, to $12.77. Options volume in OVTI is also interesting. About 10,000 calls and 450 puts traded on the stock so far, which is more than double the average daily volume for the name. September 15 calls are the most actives. 5,500 traded. August 15 and September 16 calls are seeing interest as well. It’s not clear what is motivating the gains in the shares or the high call volume, but the activity seems to reflect some bullish views on OVTI.

Patterson Energy (NASDAQ:PTEN), a Houston, TX oil and gas driller, is trading down 41 cents to $14.61 and options volume on the stock is running almost 6X the daily average. 4,500 calls and only 85 puts traded on PTEN so far. August 16s, which are 9.5 percent out-of-the-money and expiring in 23 days, are the most actives. 3,590 traded. August 17 calls are seeing interest as well. Some players might be taking positions in short-term upside calls on hopes for a post-earnings rally in Patterson. The company reports tomorrow morning.

Bearish Flow
A large three-way spread in the iShares Emerging Markets Fund (EEM) seems to reflect concerns about the ongoing turmoil in the global financial markets. In morning action, with EEM up a nickel to $37.46, an investor sold 23,540 Jan 30 puts on the ETF at 91 cents and bought 23,540 Jan 25 puts at 33 cents. The trade appears to close a Jan 25 – 30 put spread at 58 cents. The same investor bought a hefty block of 26,430 June 25 puts (which expire in 6/2013) for 87 cents and appears to be opening a new position. In other words, the Jan put spread was sold to close while a new position in Jun 25 puts bought-to-open. This “roll” seems to express concern that the turmoil in global financial markets might continue through the first half of next year.

Terex Corp (NYSE:TEX) saw a morning spike to $15.38, but gave up the early gains and is down 21 cents to $14.18 – now off 7.8 percent from its best levels. Options on the farm and construction machinery-maker are busy today and the flow includes an Aug 13 – 16 combination, in which the investor apparently sold 2,000 Aug 16 calls on TEX at 40 cents and bought 2,000 Aug 13 puts for 60 cents. The “risk-reversal”, for 20 cents, appears to be a new position and is possibly a short-term hedge or “collar” on the stock heading into the company’s earnings, due out after the close today.

Unusual Volume
Netflix (NASDAQ:NFLX) options volume is running 3X the (22-day) average, with 144,000 contracts traded and put volume accounting for 54 percent of the volume.

Symantec (NASDAQ:SYMC) options volume is 13.5X the average daily, with 53,000 contracts traded and call volume representing for 65 percent of the activity.

Broadcom (NASDAQ:BRCM) options volume is running 3.5X the average daily, with 50,000 contracts traded and put volume accounting for 51 percent of the activity.

Increasing options activity is also being seen in Weatheford (NYSE:WFT), Corning (NYSE:GLW), and Riverbed Technology (NASDAQ:RVBD).

Implied Volatility Mover
Implied volatility in the options on Cigna (NYSE:CI) is moving higher on the heels of Wellpoint’s (NYSE:WLP) disappointing results. WLP is down $7.45 to $53.97. CI, which reports earnings on Aug 2, is off $1.39 to $39.84 in heavy trading of 4.2 million shares. Options volume on the stock is running 2X the daily average, with 8500 calls and 3650 puts traded in the name. Meanwhile, implied volatility in the options on the managed healthcare company jumped 15 percent to 36.
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