Hot Option Plays: Stock Market Averages Are Holding Gains

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Cusick’s Corner 11-19-2012
With the market firming and the upside bias from Friday holding, stocks have something to smile about in the short -term this shortened, holiday week. The NASDAQ, QQQ, and the S&Ps, SPY, have both held critical levels and technically are showing some strength after a rough sell off in the last couple of weeks. Now headlines about the Fiscal cliff and tensions in the Middle East will probably continue to dominate the markets, but any rhetoric or major action (like Israel mobilizing), could potentially shift this constructive trend. The action in the Oil markets, USO +2.8%, and a weaker Dollar, UUP -.49%, has helped the equity and Gold markets, so I will be keeping an eye on those markets as well. This is a shortened trading week so if the action is going to be heavy then it will be over the next couple of days. See you After Hours.

Stock market averages are holding solid gains with help from housing data midday Monday. According to a report released at 10:00am ET, Existing Home Sales rose to a 4.79 million annualized rate last month, which was up from 4.69 million and better than the 4.7 million that was expected. Separately, but at the same time, the National Association of Homebuilders reported that its index of homebuilder sentiment improved to a six-year high of 46 this month, from 41 and much better than the 42 that was expected. Stock market averages had already moved higher prior to the data on continued strength from Friday, which was sparked by optimism leaders in Congress are making efforts to reach a compromise to avoid driving off the fiscal cliff. Post-earnings gains in Lowe’s (NYSE:LOW) might be adding to the positive sentiment. Elsewhere, Japan’s Nikkei was up 1.4 percent on a weakening yen and European markets were broadly higher today as well. France’s CAC 40 Index rallied 2.6 percent to help pace the advance on optimism officials are ready to offer another round of bailouts to Greece. Crude oil jumped $2.13 to $89.05 and gold gained $19 to $1733.70. On Wall Street, the Dow Jones Industrial Average is up another 166 points and the NASDAQ added 46. CBOE Volatility Index (.VIX) eased .60 to 15.81. Overall options volume is running at a good pace and reflects a sharp change in sentiment. About 4.1 million calls and 2.8 million puts traded across the exchanges through 11:30am ET.

Bullish Flow
JP Morgan (NYSE:JPM) adds 92 cents, or 2.3 percent, to $40.45 in active trading of more than 10 million shares and is among the Dow thirty posting gains today. Not a single component of the industrial average is under water through midday. Options on the bank are actively traded as well. Approximately 82,000 calls and 15,000 puts in the name so far, which is a ratio of more than five-to-one. Weekly 50.5 calls, which expire on 11/23 and are nearly at-the-money, are the most actives in JPM. More than 17,000 traded against 496 in open interest. Some players are possibly taking positions and hoping for additional strength in the financial sector through the remainder of the week, which will be abbreviated due to the Thanksgiving holiday Thursday (shortened session Friday). Others seem to be taking a longer-term view, however, as the next most actives in JPM today are in the January 45 and 55 calls that expire in Jan-2014.

Zillow (Z), the Seattle-based real estate web information service, is up 66 cents to $24.68 and ticked to session highs shortly after today’s housing numbers were released. Options volume on the stock is running 2.5X the daily average, with most of the flow concentrated in the February 25 calls on Zillow. 4,526 now traded against 269 contracts of open interest.

Bearish Flow
Some of the airlines are seeing increased put activity. Southwest Airlines (NYSE:LUV) is up 10 cents to $19.03 and one player bought 18,000 January 15 puts on the airliner for 10 cents per contract, according to a source on the exchange floor. Open interest is 2,163 contracts and so this appears to be a new position. It’s not a straight bearish play, however, because it was tied to a block of 180K shares for $9 even. Still, the hefty put purchase seems to express concerns about heightened volatility in shares of Southwest Airlines through early-2013. January puts on Delta (NYSE:DAL), US Airways (NYSE:LCC) and United Airlines (UAL) also saw interest early Monday. The increased activity comes after a 4.3 percent drop in the AMEX Airlines Index (.XAL) since 11/8.

IAC InterActive (NASDAQ:IACI), the New York-based Internet information provider, is up 25 cents to $43.03 and options volume on the stock is running 2.5X the daily average. 3,330 puts and 235 calls traded in the name so far. December 30 puts are the most actives, with 1,000 traded against 0 in open interest. Dec 35, Apr 40, and May 35 puts are the next most actives and implied volatility is ticking 5 percent higher to 29. It’s not clear what is motivating the increased activity, as there are no obvious news headlines on the ticker today. The stock is up today, but has been reeling lately – down 22.3 percent in a little over a month. Some investors might be buying puts on the day’s strength amid concerns about further losses in the underlying in the weeks/months ahead.

Unusual Volume
Corning (NYSE:GLW) options volume is running 4X the (22-day) average, with 69,000 contracts traded and call volume accounting for 98 percent of the volume.

Teavana (TEA) options volume is 19X, the average daily, with 27,000 contracts traded and put volume representing 95 percent of the activity.

Electronic Arts (EA) options volume is running 6.5X the average daily, with 25,000 contracts traded and call volume accounting for 82 percent of the activity.

Increasing options activity is also being seen in Tyson Foods (NYSE:TSN), Southwest Airlines (NYSE:LUV), and Agnico Eagle Mines (NYSE:AEM).

Implied Volatility Mover
Implied volatility in the options on Qihoo Technologies (QIHU) is picking up ahead of earnings. The stock gained 69 cents to $23.67 in active trading of 1.15 million shares. Meanwhile, options volume on the Chinese Internet company is running 2.5X the daily average. 5,535 calls and 2,210 puts so far. December 24 and 25 calls are the most actives. 30-day implied volatility in QIHU options is up 18.5 percent to 62 ahead of the results, which are due out after the closing bell. The stock rallied more than 16 percent on 8/22 when the company last reported.

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