Hot Option Plays: Neither Tricks Nor Treats Today After Hours

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Cusick’s Corner
The storm might have put some new potential plays on the radar but the action is still challenged in spite of this event. The market just is not able to hold up at these levels with the continued disappointment in data and earnings. This is not a resounding bearish insight; any additional negative news might put the pressure further on the bulls. Tomorrow could deliver that kind of punch with Claims and Construction data out early. Well, I still have little monsters, so time to Trick or Treat — see you Midday.

Stock market averages seesawed in and out of positive territory, but finished little changed Wednesday. After the two-day closure on Wall Street due to Hurricane Sandy, three days of news was compressed into one single trading session and that, along with end-of-month position squaring, resulted in choppy action. Profit reports continue to roll in, with GM, Ford (NYSE:F), Sanmina (NASDAQ:SANM), Seagate Tech (NASDAQ:STX), and Western Union (NYSE:WU) among the names moving around earnings. On the economic front, a report released this morning showed the Chicago PMI at 49.9 in October, from 49.7 and below expectations of 50.9. Overseas, Japan’s Nikkei and Hong Kong’s Hang Seng both gained about 1 percent overnight, but trading was sluggish across the Eurozone and the euro is flat at 1.2955 against the buck. Crude oil added 47 cents to $86.15 and gold gained $9 to $1721. On Wall Street, the Dow Jones Industrial Average did a lot of bouncing around, but finished down just 11 points. The NASDAQ lost 10.7 points.

Bullish
Netflix (NASDAQ:NFLX) was halted this afternoon and surged 13.9 percent to $79.24 today after a filing showed activist investor Carl Icahn taking a 10 percent stake in the online video and DVD rental company. The stock rallied on heavy volume of more than 15 million shares. Meanwhile, options volume in Netflix hit 2.5X the daily average. 92,000 calls and 80,000 puts traded on the stock. Weekly 70 and 75 calls, which expire in just two days, were the most actives. The Weekly 65 and 70 puts were the next most actives. Meanwhile, implied volatility in NFLX options was up 6 percent to 68.

Bullish trading was also seen in Verisign (NASDAQ:VRSN), Groupon (GRPN) and Gold Fields (NYSE:GFI).

Bearish
US Airways (NYSE:LCC) was up 26 cents to $12.18 and showed some resilience today in the wake of Hurricane Sandy. Some feared that airlines would take it on the chin after the two-day market closure, because the disaster also resulted in 18,000 flight cancelations and completely shuttered the three big airports around New York City. Dow Jones estimates that Sandy could hit the airlines $25 to $45 million apiece to their fourth quarter bottom line results. Some investors might therefore be hedging their views in LCC, as about 15,000 puts and 2,300 calls traded on the airliner today. January 9 puts were the most actives. More than 10,000 contracts traded.

Bearish trading was also seen in Sony (NYSE:SNE), Avon (NYSE:AVP), and Exelixis (NASDAQ:EXEL).

Index Trading
CBOE Volatility Index (.VIX) hit a morning low of 17.56, midday high of 18.84, and settled up .79 to 18.60 on a very choppy day of market action Wednesday. The S&P 500 (.SPX) bounced around in a 13-point range and finished up just .22 points to 1,412.16. Overall options volumes were light, however, as many market participants on the East Coast are still dealing with the fallout from Sandy. In the index market, for example, 541,000 calls and 495,000 puts traded on VIX, SPX and other cash index products, which is only 85 percent the daily average, according to Trade Alert data. Deep out-of-the-money November 1,500 calls on SPX were the most actives. 34,140 traded. VIX Dec 17 puts, Nov 16 puts and Jan 25 calls were the next most active options in the index market Wednesday.

ETF Action
The two largest options trades in Wednesday’s session were large blocks of puts on the SPDR Oil and Production Fund (XOP). Shares finished down 14 cents to $53.77 and one investor sold 41,000 December 50 puts on the ETF at $1.35 per contract and bought 61,000 December 45 puts for 51 cents each. Open interest in the December 50 puts stands at about 72,000 contracts. And so the hefty sale of puts today might be a closing trade. Meanwhile, the December 45 puts appear to be new positions (volume exceeds open interest). Taken together, the activity looks like rolling, as an investor is possibly closing a position in the 50 puts to open a new position the 45s. XOP, which is an exchange-traded fund that holds a basket of shares of energy-related names, is down about 6.5 percent in the past two weeks and the activity seems to express concerns about the risk of additional losses in the weeks ahead.

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