Hot Option Plays: Taking A Bite Out Of Apple Midday
Cusick’s Corner 12-04-2012 Midday
Sellers have gained some momentum this Midday, with equities challenging critical support, 1400 on the SPX. Now I have previously noted in the Corner that the Euro Currency, FXE, has been holding up especially against a falling Dollar, UUP, which is holding up US equities and actually catalyzing the EU markets. The “Fiscal Cliff” talk could also be a catalyst for the EU markets at this stage as well. Tech, NDX, is under pressure into the noon hour, while Apple, AAPL, has hit resistance, 200-day Moving Average ~$600. If weakness continues in this Tech heavyweight, it could negatively impact this sector. See you After Hours.
Market action is slow Tuesday without much conviction. With no economic data or earnings of importance to guide trading, the underlying tone of trading is cautious ahead of key jobs data later in the week. ADP offers the first peek at the November jobs situation with a private sector report Wednesday morning. The Labor Department releases weekly jobless claims Thursday and its monthly payroll report Friday. Elsewhere, trading was mostly mixed throughout Asia and Europe for a second day. The euro has added another .15 percent to 1.3075 against the dollar ahead of meetings from the European Central Bank and the Bank of England Thursday. Crude oil is down 89 cents to $88.20 and gold lost $21 to $1700. On Wall Street, there’s not much direction and investors are also waiting for additional headlines related to Fiscal Cliff talks in Washington. The Dow Jones Industrial Average is down 4 points and the NASDAQ lost 20. CBOE Volatility Index (.VIX) is up .30 to 16.94. Overall options volumes are very light, with about 2.1 million calls and 2.2 million puts traded across the exchanges through 11:10am ET.
Options on Advanced Micro Devices (NYSE:AMD) are seeing active trading for a second day. Roughly 34,000 calls and 3,250 puts had traded yesterday on AMD through midday Monday. Today, shares are down 4 cents to $2.31 and volume is 2.5X the daily average. Approximately 30,000 calls and 2,050 puts traded on the chipmaker through mid-session. Like yesterday, April 3.5 calls are the most actives in the name. 14,685 contracts have changed hands. January 2, December 2.5, and April 7 calls are the next most actives. It’s not clear what is motivating the strong interest. Shares have performed well lately; gaining 28 percent off 52-week lows of mid-November, but are down 57 percent year-to-date.
Melco Crown Entertainment (NASDAQ:MPEL) drops $1 to $14.37 on reports money transfers to Macau gaming companies are under increased regulatory scrutiny [[Reuters]]. The stock is down in active trading of 6.8 million shares and options volume is 3.5X the daily average. 9,900 calls and 2,950 puts so far. Jan 16 calls are the most actives, with 7,860 traded against 17,704 in open interest. Some investors are possibly closing positions as the stock falls. Others are possibly taking a contrary view of the situation and buying upside calls on MPEL on the view today’s decline is an overreaction. The stock has performed well in recent months and is up 42 percent since July.
The largest options trades so far today are in the SPDR Financials (XLF) after 141,000
December 15 puts trades on the ETF at an average of 7.5 cents per contract and 75,000 Feb 15 puts for 34 cents per contract. Looking at open interest and trade history, the action in the Feb 15 puts appears to be a new position. Meanwhile, the hefty block of December 15 puts might close part of spread opened on September 24 when a Dec $13 – $15 put spread traded on XLF for 26.5 cents, 165,000X. The investor is possibly closing out the Dec 15 leg of the spread and expecting the Dec 13 leg to expire worthless. XLF is down 4 cents to $15.66 today and the Dec 13 puts are 17 percent out-of-the-money and expiring in 17 days. Meanwhile, the Dec 15 leg – which is 4.2 percent OTM – is being closed out and rolled to the new position in the Feb 15 puts. If so, the strategist was possibly looking for weakness in the financials through mid-December, but is now extending their view two months. It might be part of a protective put or hedging strategy against a larger stock portfolio.
Options on Pandora (P) are busy today ahead of earnings. The internet radio company reports results after the closing bell. The stock is up 25 cents to $9.21 in active trading of 3 million shares ahead of the news. About 14,000 puts and 7,400 calls traded on the stock. The top trades are part of a spread, in which the investor bought 5,000 Dec 9 puts on Pandora for 85 cents, and sold 5,000 Dec 8 puts at 40 cents. The spread, for Dec 8 – 9 put spread, for 45 cents, might be a view that shares will come under fire after the company reports results. However, open interest is sufficient to cover in both contracts, so the flow might be closing activity or maybe a position adjustment. Pandora shares rallied more than 14 percent on August 30 when the company last released results.
Metro PCS (NYSE:PCS) options volume is running 3X the (22-day) average, with 57,000 contracts traded and put volume accounting for 68 percent of the volume.
Gap Stores (NYSE:GPS) options volume is 4.5X, the average daily, with 39,000 contracts traded and put volume representing 76 percent of the activity.
AMD options volume is running 2.5X the average daily, with 33,000 contracts traded and call volume accounting for 93 percent of the activity.
Increasing options activity is also being seen in Texas Instruments (NYSE:TXN), Pandora (P), and BMC Software (NYSE:BMC).
Implied Volatility Mover
Implied volatility in the options on Baidu.com (NASDAQ:BIDU) is moving higher amid relative weakness in the stock and higher options volumes Tuesday. The stock is down $5.9 to $90 and new 52-week lows on heavy volume of 6.9 million shares. Options volume is about 40,000 calls and 44,000 puts, which is 4X the normal volume for the stock through midday. At the same time, 30-day implied volatility in BIDU options jumped 25 percent to 43. Shares of other Chinese Internet names (like SINA, YOKU, and SOHU) dropped Tuesday as well.
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