Hot Option Plays: Stock Market Averages Lower Despite Positive Data Midday

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Cusick’s Corner 11-27-2012 Midday
The data came in line with expectations and most notably Consumers Confidence was stable, this really points more towards employment than actual consumption. The continual media coverage of the “Fiscal Cliff” could start to wear on the psyche of the consumer/investor but at this stage it has not. Overnight there was also positive news on Greece which had the Euro currency attempting to challenge the $1.30 level and is holding mid-term support of $1.29. Energy markets, XLE, or more specifically the Crude markets, USO, broke short-term uptrend support early in the session but look to be closing back above. I want to keep an eye on this market for any negative flags. See you After Hours.

Stock market averages are modestly lower despite a round of positive economic data Tuesday. A report released before the opening bell showed Durable Goods were unchanged in October. While not stellar, the number was better than the -.4 percent that was expected. Separate data released later was the Conference Board’s Consumer Confidence Index improving to 73.7 in November, multi-year highs, and better than the 73.0 that was expected. October was reported at 72.2. Stocks wavered despite the better-than-expected numbers amid sluggish trading across most global equity markets. While action was mixed through most of Asia, Shanghai’s Composite Index lost over 1 percent and fell to multi-year lows. At the same time, European equity markets failed to show much reaction to news that finance ministers have agreed to another round of aid to Greece. Action in the commodities markets is also uninspired. Crude oil is down 44 cents to $87.30 and gold lost $4.5 to $1745. On Wall Street, the Dow Jones Industrial Average is down 15 points. However, the tech-heavy NASDAQ erased its early losses and is up 1 point. CBOE Volatility Index (.VIX) is down .38 to 15.12 and overall options volume remain light, with about 2.8 million calls and 2.4 million puts traded across the exchanges through 11:30am ET.

Bullish Flow
Freeport McMoran (NYSE:FCX) sees unusual options activity. Shares of the gold and copper miner aren’t doing much. FCX was recently up a penny to $38.85 on light volume of 3.5 million shares. By way of comparison, typical volume in FCX through midday is about 5.25 million. On the options front, 17,000 calls and 5,225 puts traded on the ticker. Interestingly, much of the activity is in the Weekly options that expire at the end of this week (11/30). Weekly 39.5 calls are the most actives. 6,800 traded against 957 in open interest. In addition, with nearly 80 percent of the flow trading at the offer or asking price, it appears that buyers are dominating the action. It’s not clear what is motivating the higher volumes in these very short-term upside calls because the metals market is mostly lower and there have been no obvious headlines on the ticker lately. Weekly 39 and 40 calls on FCX are seeing interest as well.

Cheniere Energy (LNG) adds 41 cents to $15.69 in active trading of 3.6 million shares on reports the company’s Sabine Liquefied Natural Gas Terminal [LNG] is moving along faster than expected (per Briefing). The stock saw an intraday move higher to $16.15 and options action is picking up as well. About 11,000 calls and 2,000 puts traded in the name. June 19, December 16, and December 17 calls are the most actives so far.

Bearish Flow
Youku Toudu (YOKU) drops 48 cents to $17.43 and options volume on the stock is running 3X the daily average ahead of earnings. The Chinese Internet company is due to report results after market on Thursday. 6,930 puts and 630 calls traded in YOKU today ahead of the news, a ratio of more than ten-to-one. Weekly 17 puts, which will expire the day after the company reports its earnings, are the most actives. 3,184 traded against 185 in open interest. December 17 and 14 puts are the next most actives and implied volatility in YOKU is moving up 5 percent to 81.

SPDR Financials (XLF) adds 2 cents to $15.90 on light volume of 20.5 million shares, as trading has been mostly quiet in the financial names so far today. Some players in the options market might perhaps be bracing for increasing volatility in the weeks ahead, however, as about 80,000 puts and 31,000 calls traded in XLF today. The largest traded is a 30,000-contract block of January $14 puts traded for 8 cents per contract on the ISE. An investor bought the block, to open, according to data from ISE. More than 50,000 now traded. XLF is a fund that holds all of the financial-related names from the S&P 500.

Unusual Volume
SPDR Oil and Production Fund (XOP) options volume is running 4X the (22-day) average, with 83,000 contracts traded and put volume accounting for 97 percent of the volume.

McMoran (NYSE:MMR) options volume is 3X, the average daily, with 69,000 contracts traded and call volume representing 53 percent of the activity.

Allstate (NYSE:ALL) options volume is running 9X the average daily, with 60,000 contracts traded and call volume accounting for 94 percent of the activity.

Increasing options activity is also being seen in Acadia Pharmaceuticals (NASDAQ:ACAD), Corning (NYSE:GLW), and DirectTV (NASDAQ:DTV).

Implied Volatility Mover
Nexen (NYSE:NXY) drops 52 cents to $24.25 in active trading of 11.5 million shares and implied volatility in the options on the Canadian energy company is moving up, even after Bloomberg ran a story suggesting that Cnooc’s bid to buy the company is “moving along.” There has been uncertainty about the deal and whether or not Canadian regulators will approve the Chinese company’s attempt to buy Nexen. On the options front, 8,950 calls and 5,950 puts have traded in NXY. December 27 calls and January 20 puts are the most actives. Implied volatility is moving up 18.5 percent to 74.

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