Hot Option Plays: Complacency Or Confidence Midday

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Cusick’s Corner 01-03-2013 Midday
“Complacency” that is what the VIX spells. The Volatility Index went from a high of 23.23 to 14.38 and this action that has occurred over 2 days is frankly, unprecedented. So what does this mean? One perspective is that the longs of 2012 that held on into the “Cliff” are the bid, not the sidelined cash or underinvested institutional trader. Even after this parabolic move to the upside, there still seems to be little insurance being bought. The oX Put/Call ratio is now at .36 which means for every 3 calls bought there is only 1 put purchased. This is a very confident move to the upside in the market, one to be respected and if it is able to finish in the green today, the momentum is with the bid. See you After Hours.

Stock market averages are modestly lower after the big gains seen to start the New Year. After surging 303 points Wednesday, the Dow Jones Industrial Average opened a bit lower after the Labor Department reported that jobless claims rose by 10,000 to 372,000 last week. 362,000 was expected. The spotlight was also on the retailers and a mixed round of December same store sales results. TJX, Nordstrom (NYSE:JWN), and Barnes and Noble (NYSE:BKS) are trading higher in the wake of their results. Limited Brands (NYSE:LMT), Macy’s (NYSE:M), and JC Penney (NYSE:JCP) are losing modest ground. At the same time, the automakers – Ford (NYSE:F) and GM – are both trading higher on the heels of their monthly auto sales results. Elsewhere, Asia’s equity markets finished mostly higher and trading is mixed across the Eurozone. Crude oil is off 22 cents to $92.90 and gold gave up $10.5 to $1678. On Wall Street, the Dow Jones Industrial Average is down 15 points and the NASDAQ dropped 1.5 points. CBOE Volatility Index (.VIX) dropped another .09 to 14.59. Overall options volumes running at a respectable pace, with approximately 3.2 million calls and 2.3 million puts traded across the exchanges through 11:00am ET.

Bullish Flow
General Motors (NYSE:GM) shares are up 2.3 percent to $29.80 and new 52-week highs after the company reported a 5 percent increase in December sales. On the options front, trading is active in GM today. 39,000 calls and 7,200 puts so far. The top trade is part of a spread, in which the investor apparently sold 9,200 January 30 calls on the stock at 59 cents and bought 9,200 March 32 calls for 65 cents. The spread, for 6 cents, is possibly rolling activity. That is, the investor is selling out-of-the-money calls that expire in 15 days to close an existing position, but is opening a new position in March upside calls on expectations GM will continue to roll higher in the weeks/months ahead.

Trina Solar (NYSE:TSL) adds 74 cents to $5.22 in very active trading of 5.8 million shares, but no company specific news to explain the 16 percent gain or higher volume today. Options action is heating up as well. 4,520 calls and 1,130 puts so far. January 5 calls are the most actives and are possibly seeing some liquidating trades now that the contract is in-the-money and expiring in a little more than two weeks. 938 traded against 1,876 in open interest. Feb 6 and Jun 7 calls are the next most actives in TSL today.

Bearish Flow
Mattel (NYSE:MAT) drops 17 cents to $36.63 and options volume on the game-maker is running 13X the daily average after about 11,000 puts and only 150 calls traded on the stock. The bulk of the flow is in the February term and the Feb 37 puts are the most actives. One player bought 5,000 contracts for an average of $1.375 per contract, according to a source on the floor. 6,300 Feb 37 puts now traded on the stock against 85 in open interest. February 36 and 38 puts on Mattel are seeing activity as well, but with no company headlines to explain the increased activity in the stock today. Earnings are expected towards the end of the month and inside the Feb expiration.

Fortinet (FTNT) drops 67 cents to $20.52 and options volume on the Sunnyvale, CA application software company is running 6X the daily average, with 6,150 puts and 2,975 calls traded on the stock so far. January 20 puts are the most actives. 3,845 contracts traded against 244 contracts in open interest. Feb 19 puts are the second most actives. 1,710 changed hands. It’s not clear what is motivating the activity, as there are no obvious headlines on Fortinet so far today.

Unusual Volume
iShares Taiwan Fund (EWT) options volume is running 3.5X the (22-day) average, with 60,000 contracts traded and call volume accounting for 50 percent of the volume.

Melco Crown Entertainment (NASDAQ:MPEL) options volume is 5X, the average daily, with 24,000 contracts traded and call volume representing 99 percent of the activity.

Mellanox Technologies (NASDAQ:MLNX) options volume is running 2.5X the average daily, with 23,000 contracts traded and put volume accounting for 70 percent of the activity.

Increasing options activity is also being seen in Macy’s (NYSE:M), Nucor (NYSE:NUE), and Mattel (NYSE:MAT).

Implied Volatility Mover
Implied volatility in SunPower Tech (NASDAQ:SPWR) is moving higher along with the share price Thursday. The stock rallied 32 percent to $8.10 on heavy volume of 9.2 million shares. 7,330 calls and 1,550 puts traded on SPWR so far, which is 5.5X the daily average. January and March 6 calls are the most actives in SPWR today and 30-day implied volatility jumped 19 percent to 72.5.

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