Hot Option Plays: The Tale Of Two Markets After Hours
Cusick Corner 01-24-2013 After Hours
Today was the tale of two markets. The Tech sector was hit, AAPL down -12.35% which pulled down QQQ -1.38% while the blue chips were up on good claims data, DJX +.33%. We also had the S&Ps pullback from highs that we have not seen since 2007, SPX hit 1502. So now we are looking at a weak NASDAQ and a neutral Dow and S&P500. With Volatility right off its lows and earnings coming in mixed, the fear to chase at this stage is leaving quite a few participants on the sidelines. Let’s see if this grind holds on the S&Ps and the DJX and if the dust settles on the Tech side, causing bargain hunters to maybe jump in and catalyze some more participation in the market. See you Midday.
The S&P 500 reclaimed 1,500 Thursday morning despite a big drop in tech bellwether Apple Computer (NASDAQ:AAPL), only to trim the gains later and finish flat. Stock index futures fell late-yesterday and were lower overnight after Apple shares dropped from $514 to $460 on the heels of its earnings report. However, trading was steady in overseas markets and market averages also held firm at the opening bell on Wall Street. The latest jobless claims offered some solace after dropping to 330,000 last week, from 335,000 and much better than the 355,000 that was expected. Later, the list of leading economic indicators was up .5 percent for December and in-line with expectations. In other stock news, Netflix (NASDAQ:NFLX) surged 42 percent on the heels of its earnings release and a number of second tier names, like Travelzoo (NASDAQ:TZOO), Swift Transportation (SWFT) and Salesforce.com (NYSE:CRM), saw post-earnings gains as well. Crude oil is up 77 cents to $96 on weekly inventory data, but gold lost nearly $20 to $1667. On Wall Street, the Dow Jones Industrial Average finished with a 46-point gain and closed higher for a fifth consecutive day. The Dow has posted gains in 10 of the past 11 trading sessions. However, the 12.4 percent slide in Apple weighed on the NASDAQ, which lost 23.3 points Thursday.
An impressive spread trades in Dow Chemical (NYSE:DOW) midday Thursday. Shares were up 35 cents to $34.43 and one investor bought a January 2014 40 – 45 call spread on the chemicals company for 61 cents, 44700X. That is, according to a source on the exchange floor, they bought 44,700 January $40 calls for 76 cents and sold 44,700 January 45 calls at 15 cents (both in the January 2014 options). The position appears to be opening and will create the largest blocks of open interest in DOW. If so, it’s a bullish play that seems to be targeting a substantial move higher in shares through early-2014. The stock has performed well lately, rallying more than 25 percent off the 52-week lows seen in mid-November.
Bullish trading was also seen in Dendreon (NASDAQ:DNDN), Decker Outdoor (NASDAQ:DECK), and iStar Financial (NYSE:SFI).
Affymax (NASDAQ:AFFY), a Palo Alto, CA biotechnology company, dropped 27 cents to $19.49 on relatively light volume of less than 500,000 shares. Yet, options volume was 6.5X the daily average. Roughly 4,000 puts and 270 calls traded in the name. Much of the volume was in one transaction after a 1,500-lot of February 16 puts traded on the stock for 30 cents per contract when the market was 20 to 30 cents. At the end of the day, 3,524 Feb 16 puts traded on AFFY against zero in open interest. The stock is on a six-day 9.6 percent losing skid and some investors are possibly buying Feb 16 puts on the stock for fear of further losses in the weeks ahead.
Bearish trading was also seen in Paychex (NASDAQ:PAYX), Wesco International (NYSE:WCC), and Manitowac (NYSE:MTW).
It was a busy day in the options market Thursday. Projected volume was almost 21 million contracts and the second highest so far this year behind the high volume seen around the January expiration. The increased activity was seen across equity, exchange-traded funds, and index options. In the index market, for example, 1.2 million calls and 1 million puts traded on the CBOE Volatility Index (.VIX), S&P 500 Index (.SPX) and other cash indexes. The S&P 500 finished up .01 to 1,492.82 and VIX, which tracks the expected or implied volatility priced into SPX options, was up .23 to 12.69. VIX February 16 calls were the most actively traded index contract of the day after more than 128,000 contracts changed hands.
iShares Brazil Fund (EWZ) dropped 14 cents to $56.70 and a May 53 – 55 call spread traded on the ETF at $1.65, 40000X. According to a source on the floor, the investor sold 40,000 May 53 calls on EWZ at $4.30 and bought 40,000 May 55 calls for $2.65. Looking at trade history of the two contracts, the activity appears to close a spread opened for 79 cents, 40000X, on 11/19. Shares are up 9.6 percent since that time and both legs of the spread are in-the-money. If shares hold above $55 through the expiration, both contracts will remain in-the-money and the spread will widen to $2. However, by offsetting the position today, the strategist appears to be stating that they’d rather book the profit now, rather than run the risk of seeing shares drop back below $55 over the next 7 weeks.
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