Hot Option Plays: Let’s Look At Global Midday

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Cusick’s Corner 12-17-2012 Midday
This is the part of the year where you might typically see last minute shifts to clean up any lose ends, preparing for a new year. But this is anything but normal with the action being mostly range-bound and we are not having the discussions of taking on or off “risk” trades but something potentially larger and much different. I mentioned last week the unusual strength in Chinese markets, FXI, and Industrials, XLI, of late. Could there be a shift in the cycle to add the next generation of growth that is more global? This is a dynamic that should be investigated more closely as Washington gets closer to a proposal to deal with the Cliff and money need s to get put to work. This could also impact the potential trend in the Crude markets and might also add some more volatility to the Bond market, especially at the long end of the curve. See you After Hours.

Stock market averages moved higher on hopes for a fiscal cliff compromise after House Speaker John Boehner expressed some flexibility on the subject of taxing high income earners. Beyond that, it’s been a relatively slow news day. On the economic front, a report on regional manufacturing showed the New York Empire State Index down to -8.1 in December, which was below expectations of +2. The market showed little reaction to the news and stock market averages held higher at the open. Elsewhere, crude oil is up 87 cents to $87.60 and gold ticked .60 higher to $1696.50. On Wall Street, the Dow Jones Industrial Average is up 86 points and the NASDAQ added 26 points. CBOE Volatility Index (.VIX) dropped .32 points to 16.68. Overall options volumes are picking up from last week’s slow pace and might remain active this week heading into the Quadruple Witch expiration. Approximately 5.3 million calls and 2.9 million puts traded across the exchanges through 11:45am ET.

Bullish Flow
Delta Airlines (NYSE:DAL) is up 7 cents to $11.29 in active trading of 10 million shares after the firm Dahlman Rose upgraded a number of different airline companies today, including DAL. Options on Delta are busy as well. About 16,000 calls and 4,200 puts traded on the stock through midday. January 12.5 calls are the most actives and the flow included a flurry of activity at the 30-cent asking price this morning. 4,300 contracts now changed hands. Dec, Mar and Jan 11 calls are the next most actives in Delta today.

Taiwan Semiconductor (NYSE:TSM) drops 4 cents to $16.91 and options volume on the chipmaker is running 12.5X the daily average, with 9,755 calls and 115 puts traded in the name so far. December 17.5 calls are the most actives. 8,525 traded against 5,872 in open interest. Another 1,142 April 15 calls also traded on the ticker. The increased activity comes after the company updated its capital expenditure and 2013 revenue growth numbers.

Bearish Flow
US Natural Gas Fund (UNG) is up 33 cents to $19.20 and options volume on the ETF is interesting, as about 49,000 puts and 9,500 calls traded on the ticker so far. The bulk of the activity is in January puts with strike prices ranging from 10 to 16. The flow seems to include a mix of buying and selling of downside puts, but 30-day implied volatility is up 4.5 percent to 39. UNG is a fund that tracks natural gas through futures contracts and has been slipping lately on concerns that warmer than usual winter weather will curb demand for the commodity. Today’s flow in UNG might reflect concerns about additional losses in the natural gas markets.

Zynga (ZNGA) shares drop 10 cents to $2.44 and the top trade on the social media game company is a 3500-lot of December 2.5 calls at 7 cents per contract on the International Securities Exchange [ISE]. An investor sold the calls, to close, according to ISEE data. More than 13K traded against 36K in open interest. The contract is falling 6 cents out-of-the-money and expires at the end of the week. Today’s call writers are possibly liquidating positions on diminishing hopes for a substantial rally in ZNGA this week. Shares hit a high of $2.63 Wednesday before suffering a three-day losing skid.

Unusual Volume
iShares Emerging Markets Fund (EEM) options volume is running 4.5X the (22-day) average, with 923,000 contracts traded and call volume accounting for 93 percent of the volume.

iShares MSCI Fund (EFA) options volume is 12X, the average daily, with 658,000 contracts traded and call volume representing 96 percent of the activity.

Sandridge Energy (NYSE:SD) options volume is running 2.5X the average daily, with 91,000 contracts traded and put volume accounting for 70 percent of the activity.

Increasing options activity is also being seen in Clearwire (NASDAQ:CLWR), SPDR Oil and Production Fund (XOP), and NRG.

Implied Volatility Mover
Implied volatility in the options on Orexigen Therapeutics (NASDAQ:OREX) is moving higher ahead of the company’s analyst day. Shares added 26 cents to $5.35 and options volume on the stock is running 5X the daily average ahead of the event. 2,220 calls and 60 puts traded on the ticker. The January 5 calls on the biotech are seeing the bulk of the action. 1,900 traded. Meanwhile, 30-day implied volatility in OREX is moving up 12.5 percent to 72.

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