Hot Option Plays: Headlines Focus On “Cliff” Midday

OptionsXpress
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Cusick’s Corner Midday 12-03-2012
While many headlines are focused on the “Cliff”, I have been monitoring the action in the Small Caps like RUT which led all last week and I am also watching the Euro Currency, FXE. The performance of the Euro is and continues to be very highly correlated with the action in the equities, S&Ps, so I will continue to watch the action in the currency to give me a pulse on the action in equities. As I write this I am seeing a headline that the President is going to answer “Cliff” questions this afternoon on Twitter — isn’t this getting interesting? See you After Hours.

Stock market averages opened higher, but trading quickly turned mixed following disappointing manufacturing data Monday morning. Gains across most European equity markets and a .6 percent jump in the EUR/USD currency pair seemed to help set the table for steady trading on Wall Street early in the day. The euro is now at 1.3065 against the dollar, as EU leaders meet today to discuss Greek bond buyback plans announced overnight. Yet, the domestic news was mostly disappointing after ISM Index for November fell to 49.5, from 51.7 and well below expectations of 51.2. Separate data showed Construction Spending 1.4 percent in October, and 1 percent more than expected. Meanwhile, the automakers are also in focus. Ford shares ticked higher after its November sales results exceeded estimates, but GM is lower in the wake of its results. In other markets, crude oil is up 33 cents to $89.24 and gold edged up $4.4 to $1717.1. Trading is quiet to start the new week and new month on Wall Street as well. The Dow Jones Industrial Average is down 26 points, but the tech-heavy NASDAQ added 2.5. CBOE Volatility Index (.VIX) is up .43 to 16.3. Overall options volumes are light, with about 2.9 million calls and 2.3 million puts traded across the exchanges through 11:30am ET.

Bullish Flow
Options on Advanced Micro Devices (NYSE:AMD) are seeing a flurry of activity. The stock is up 11.5 percent to $2.45 and near session highs. AMD, which is down 54.6 percent in 2012, is in the midst of a five-day 31 percent rebound. Some players in the options market seem to be anticipating the bounce to continue, as trading in the options on the chipmaker is very busy today. Roughly 34,000 calls and 3,250 puts traded on AMD so far, a ratio of more than ten-to-one. April 3.5 calls are the most actives. 13,868 contracts traded. December, January and April 2.5 calls on AMD, which are now almost at-the-money, are busy as well.

Southwest Energy (NYSE:SWN) is up 49 cents to $35.20 and options volume on the Houston, TX oil and gas company is 2.5X the daily average, with about 11,000 calls and 1,260 puts traded in the name so far. December 37 calls, which are now 5.1 percent out-of-the-money and expiring in 18 days, are the most actives in SWN. 4,422 traded. December 36 and 38 calls are the next most actives. Implied volatility is up 8 percent to 31. It’s not clear what is motivating the increased activity, as there are no obvious headlines on SWN today.

Bearish Flow
Leapfrog Enterprises (NYSE:LF), an Emeryville, CA toy and game-maker, is off 28 cents to $8.83 and options on the stock are busy today. Approximately 12,000 puts and 400 calls so far, which is nearly 5X the daily average options volume for the name. Much of the flow is concentrated in March 7.5 puts, where 10,650 contracts traded against 2,201 in open interest. The largest trade is a 9,345-contract block for 65 cents per contract when the market was 60 t0 65 cents and appears to be an opening purchase. LF is down today, but has leapt 22.4 percent in the past two weeks. The apparent put buying might be part of a hedging strategy by a shareholder to help protect the recent gains.

Health Management Associates (NYSE:HMA) is off 39 cents to $7.56 after the TV program 60 Minutes aired a negative piece about the company over the weekend. The show suggested that the company pressured doctors to admit patients into its hospitals, regardless of patient’s needs. HMA is down on the heels of the report and options volume is running almost 6X the daily average. 4,300 puts and 125 calls traded in the name so far. February 7 puts are the most actives. 1,800 contracts traded so far.

Unusual Volume
Verisign (NASDAQ:VRSN) options volume is running 2X the (22-day) average, with 34,000 contracts traded and call volume accounting for 58 percent of the volume.

AMD options volume is 3X, the average daily, with 33,000 contracts traded and call volume representing 93 percent of the activity.

Allscripts (NASDAQ:MDRX) options volume is running 5X the average daily, with 22,000 contracts traded and call volume accounting for 94 percent of the activity.

Increasing options activity is also being seen in Leapfrog (NYSE:LF), Pitney Bowe’s (NYSE:PBI), and ASML.

Implied Volatility Mover
Implied volatility in Qihoo Techology (QIHU) is moving higher along with the stock price today. Shares of the Chinese Internet company rallied $2.76 to $27.72 on very heavy volume of 6.6 million. By way of comparison, typical volume in QIHU through midday is less than 1 million. Meanwhile, 14,000 calls and 3,000 puts traded in the name, which is 4X the daily average. December 25 and January 27 calls are the most actives and implied volatility in QIHU options is up 33.5 percent to 51.5.

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