Hot Option Plays: Asian Equities Higher While US Mixed Midday

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Cusick’s Corner 12-26-2012 Midday
While the action is mixed today in US equities, the Far East is on fire. Japan, EWJ, is parabolic on their new Prime Minister who is looking to turn on the printing presses, causing the Yen to head south while Japanese equities closed higher at levels that we have not seen in ~2 years. China, FXI, is still in bull mode and this has Copper, JJC, and Crude, USO, on the upside. Also notable — on the Consumer side, MasterCard came out with some worse than expected preliminary spending numbers and they are at levels that we have not seen in almost ~4 years. With muted reaction to this Consumer news here at home, which potentially puts the Bears in control (especially with Washington out for recess), wonder which Senator will put their tongue on the Flagpole! See you After Hours.

Market action is mixed on a slow news and light volume day heading into midday Wednesday. There are no earnings of broad market significance for the remainder of the week and the only economic stat of the day showed the Case Shiller 20-city home price index up 4.3 percent in October, a bit better than the 3.9 percent that was expected. Overseas markets are seeing mixed trading, but Japan’s Nikkei continues to see strength and was up another 1.5 percent after Shinzo Abe was named the country’s premier. Abe has promised to run the monetary printing presses to help end the nation’s deflationary cycle. Crude oil is running $2.22 higher to $90.83 and gold gained $4.3 to $1663.8. On Wall Street, the Dow Jones Industrial Average opened higher and clings to a 15-poing gain. The NASDAQ dropped 2 points. CBOE Volatility Index (.VIX) is up .88 to 18.72. Overall options volumes are expected to be light, with approximately 1.3 million calls and 1 million puts traded across the exchanges through 10:30am ET.

Bullish Flow
Ford Motor (NYSE:F) is up 18 cents to $12.59 and moving to its best levels in over 8 months on heavy volume of 35 million shares, but no news on the automaker to explain the heightened activity. By way of comparison, typical volume in Ford shares through the first hour is about 11 million shares. Options on the stock are busy this morning as well. Roughly 90,000 calls and 36,000 puts traded in Ford so far. January 12.5 calls, which are now 9 cents in-the-money and expiring in 23 days, are the most actives. 18,920 contracts changed hands. January 11 calls and Weekly (1/4) $13 calls are the next most actives. The increased activity in Ford options comes ahead of the company’s December monthly sales report, due out on January 2.

Research In Motion (NASDAQ:RIMM) is rallying 74 cents to $11.35 in active trading of 23.3 million shares following a two-day 28 percent drop on earnings and guidance Friday-Monday. In options action, 41,000 calls and 30,000 puts traded on the stock. Weekly 11.5 calls, which are now 15 cents out-of-the-money and expiring at the end of this week, are the most actives in RIMM. 7,175 contracts traded. February $15 calls and January 8 puts have both traded more than 5,000 contracts and implied volatility in RIMM options is up 2 percent to 77.

Bearish Flow
Saks (NYSE:SKS), the New York-based department store chain, drops 29 cents to $10.32 in active trading of 1.3 million shares after early data pointed to weak holiday sales (Dow Jones Newswires). Saks is down and options volume on the stock is 4,240 puts and 160 calls. Much of the activity is in May 11 puts, where 3,557 contracts traded against 5,553 in open interest. The volume has been in smaller lots traded on the $1.55 and $1.60 asking price. Meanwhile, implied volatility in SKS options is up 7 percent to 37.5.

iShares iBoxx High Yield Bond Fund (HYG) is up 7 cents to $92.85 and options volume on the ETF is lopsided today. About 22,000 puts and 605 calls traded in HYG so far. Three 5000-contract blocks (15000 total) of January 90 puts traded for 15 cents per contract when the market was 5 to 15 cents. March 86 and 92 puts on HYG are seeing interest as well. The ETF hit a multi-month high of $93.90 Thursday before dropping 1.2 percent. The higher put volumes today might express concerns about additional losses for corporate bonds in the weeks/months ahead.

Unusual Volume
Huntsman (NYSE:HUN) options volume is running 22.5X the (22-day) average, with 29,000 contracts traded and call volume accounting for 100 percent of the volume.

Medifast (NYSE:MED) options volume is 4X, the average daily, with 5,150 contracts traded and put volume representing 93 percent of the activity.

ON Semiconductor (NASDAQ:ONNN) options volume is running 2X the average daily, with 4,440 contracts traded and call volume accounting for 100 percent of the activity.

Increasing options activity is also being seen in Rite Aid (NYSE:RAD), Clorox (NYSE:CLX), and Hospira (NYSE:HSP).

Implied Volatility Mover
Implied volatility in the options on Medifast (NYSE:MED) is moving higher, as shares of the Owings Mills, MD retailer move lower Wednesday. The stock is down 12 percent to $25.83 on reports the company’s CFO has resigned. On the options front, 3,800 puts and 120 calls traded on the stock, which is 7X the daily average. May 21 and January 24 puts are the most actives. Meanwhile, implied volatility in MED options is moving up 45 percent to 69.

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