Hot Option Plays: Midday Pop Midday

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Cusick’s Corner 12-05-2012 Midday
The CBOE Volatility Index, VIX-4.2%, never confirmed the negative price action that the equities exhibited in the morning session and was actually falling back when the market was on its lows. Tech, NDX -.60%, continues to be challenged and Apple (NASDAQ:AAPL) continues to be pressured but is trading off the lows. What is interesting in Apple is that implied volatility in the front month is back over 40%, so there is a continued heightened expectation of move in the tech giant. Crude is holding up and that is in partly due to a weak buck and some positive action out of the Chinese markets. See you After Hours.

Stock market averages are mixed following a busy morning of economic and corporate news Wednesday. On the economic front, ADP reported this morning that the US economy added 118,000 jobs in November. Economists were expecting 125,000. Separate reports showed third quarter productivity improving to 2.9 percent and .2 percent better-than-expected. Factory Orders were up 8 percent in October, and significantly better than the .1 percent drop that had been anticipated. ISM Services Index improved to 54.7 in November, from 54.2 and also better than the 53.7 that economists had predicted. It’s been a busy day of stock news as well. Freeport McMoran (NYSE:FCX) is down 14 percent on reports the company wants back into the energy business by acquiring McMoran Exploration (NYSE:MMR) and Plains Exploration (NYSE:PXP). Pandora (P) fell more than 17 percent in the wake of its earnings report and disappointing guidance after the close of trading Tuesday. Apple (NASDAQ:AAPL) is down more than $20 and weighing on the NASDAQ. Crude oil slipped 62 cents to $87.88 on the heels of weekly inventory data and gold lost another $7 to $1689. On Wall Street, the Dow Jones Industrial Average is up 50 points, but the NASDAQ dropped 20. CBOE Volatility Index (.VIX) is off .41 to 16.71. Overall options volumes are running at the best levels of the week, with about 3.9 million calls and 3 million puts traded across the exchanges through 11:40am ET.

Bullish Flow
Anadarko Petroleum (NYSE:APC) adds $1.29 to $74.80, the day after the company updated its operations at a Capital One Energy conference Tuesday. APC is presenting again today at a Wells Fargo Energy conference. On the options front, volume in APC is running 6X the daily average. 98,000 calls and 10,000 puts traded on the oil driller so far. The top trades were part of a spread, in which the investor was apparently selling nearly 60,000 January 80 calls on APC at $1.08 and $1.09 per contract, while buying 27,000 March 75 calls for $5.10 per contract. Open interest in the Jan 80 calls is 81,100 contracts and the largest block of open interest in Anadarko. So, today’s call selling might liquidate a position, while opening a new block of OI in the Mar 75 calls. The investor possibly had a bullish view on APC through mid-January 2013 and is now rolling to a new position in March call options that expire two months later, but also down five strike prices.

Symantec (NASDAQ:SYMC) sees increasing options action Wednesday. Shares of the security software-developer have erased morning losses and are now up 11 cents to $18.77. Options volume is 5X the daily average. Roughly 29,000 calls and 1,500 puts traded in the name today. April 20 calls are the most actives. 10,430 traded against 14,839 in open interest. January 21, January 22, and April 21 calls are the next most actives in SYMC. It’s not clear what is motivating the higher volumes in the stock today, as there are no obvious recent headlines on the stock.

Bearish Flow
Limited Brands (NYSE:LTD) is up 2 cents to $51.32 and options volume on the apparel retailer is running 2.5X the daily average. 5,265 puts and 1,255 calls traded in LTD so far. January 52 puts are the most actives, with 2,577 traded against 261 in open interest. December 50 puts are seeing notable flow as well. 2,210 traded vs. 234 in open interest. The stock is up 12.9 percent since the company reported earnings less than three weeks ago. The increased put activity might express concerns that the stock will give back some of those gains in the days/weeks ahead.

Conagra (NYSE:CAG) has added 18 cents to $29.73 and has now gained more than 20 percent since July. Shares of the food company saw a 4.7 percent boost on 11/27 after announcing plans to acquire Ralcorp (NYSE:RAH). Some investors are possibly turning to options to help hedge recent gains in the stock, as volume in CAG is 2.5X the daily average today after about 4,700 puts and 650 calls traded in the name. March 27 puts are the most actives. 3,065 traded against 502 in open interest. Jan 29 and Mar 26 puts on Conagra are seeing interest as well.

Unusual Volume
Freeport McMoran (NYSE:FCX) options volume is running 5.5X the (22-day) average, with 250,000 contracts traded and call volume accounting for 71 percent of the volume.

McMoran Exploration (NYSE:MMR) options volume is 5X, the average daily, with 164,000 contracts traded and call volume representing 66 percent of the activity.

Anadarko Petroleum (NYSE:APC) options volume is running 5.5X the average daily, with 103,000 contracts traded and call volume accounting for 90 percent of the activity.

Increasing options activity is also being seen in Dollar General (DG), Pitney Bowe’s (NYSE:PBI), and Western Digital (NYSE:WDC).

Implied Volatility Mover
Implied volatility in the options on Weyerhaeuser (NYSE:WY) is ticking higher amid a second day of options trading on the paper company. Yesterday’s activity created 8,000 contracts of new open interest in December 27 puts on WY. At 8,899 contracts, the Dec 27 put is the second largest position in the name, behind the Jan 20 puts. Shares are down 65 cents to $26.51 Wednesday and options volume through midday is 2,750 puts and 855 calls. December 27 puts are again the most actives after 1,440 traded. December 26 puts are the next most actives in WY. 710 contracts changed hands. It’s not clear what is motivating the activity, as there are obvious headlines on the ticker so far this week, but 30-day implied volatility in the options on the stock is 11 percent to 24.5 Wednesday.

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