Hot Option Plays: Fed And Wait Midday

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Cusick’s Corner 01-29-2013 Midday
The Fed starts their two-day meeting today and the data is mixed, the dollar is still weak and the Metals are not picking up at all. Right now the market is going to be listening for any indication that the Committee is getting a little more hawkish. Has the market priced any part of this into the market? At this point one might lean on the idea that the Fed does not waver on the statement and that the market continues to squeeze on the upside. I am still watching the action in Gold, up today, and the Dollar, continues to be pressured. Both Gold and the Dollar have been re-acting a little weird, both are going down together until today. See you After Hours.

Market action is mixed, with earnings news helping to offset a poor reading on consumer confidence Tuesday. Pfizer (NYSE:PFE) is up 2.4 percent and the best gainer in the Dow Jones Industrial Average in the wake of its earnings release. CIT, Valero (NYSE:VLO), and Eli Lilly (NYSE:LLY) are also higher. However, a number of tech names, including EMC, VM Ware (NYSE:VMW), and Seagate Technology (NASDAQ:STX), are seeing post-earnings losses. On the economic front, Consumer Confidence fell to 58.6 in January, from 66.7 and well below expectations of 65.1. Yet, trading was mostly mixed across overseas equity markets and, while crude oil rose 62 cents to $97.02, gold gained $7 to $1660. On Wall Street, the Dow Jones Industrial Average is up 35 points, but the tech-heavy NASDAQ lost 9.5. CBOE Volatility Index (.VIX) is flat at 13.57. Overall trading in the options market is relatively light today. 2 million calls and 1.75 million puts traded through 9:30 Central Time.

Bullish Flow
Trina Solar (NYSE:TSL) is shining today, up 20 cents to $5.12, in relatively active trading of 1.7 million shares on news it will supply equipment to solar projects in South Africa. The stock is up and options volume is running 3X the daily average. 11,000 calls and 750 puts traded on the stock so far. The activity is heavily concentrated in February 5 calls and includes a 5,000-contract block for 33 cents per contract when the market was 30 to 33 cents. 10,700 TSL February 5 calls now traded against 1,376 in open interest. The contract expires in 17 days and Trina Solar is expected to report earnings around Feb 21, which would lie outside of the expiration.

Marathon Petroleum (MPC) is up $2.19 to $70.84 in active trading of 1.8 million shares after Valero’s (NYSE:VLO) earnings seemed to spark some interest in oil refiners like TSO, WNR, and MRO Tuesday. MPC, which reports tomorrow morning, is trading higher and options volume on the stock through midday is about 15,000 calls and 1,065 puts. The top trades are part of a spread, in which the investor apparently bought 2,500 Jan 80 calls on the stock for $2.92, sold 5,000 Jan 90 calls at $1.74, and bought 2,500 Jan 100 calls at 76 cents. In other words, they initiated a Jan 80 – 90 – 100 call butterfly spread and, if bought-to-open, this spread has a max payout if shares move to $90 through mid-January 2014.

Bearish Flow
VM Ware (NYSE:VMW) lost $19.32 to $79 and fell to new 52-week lows on heavy volume of 16 million shares Tuesday after the enterprise systems and software company lowered its revenue guidance late-Monday. The company also announced a round of layoffs and a first quarter charge of between $90 and $110 million. Shares are reeling on the news and options volume is running 6X the daily average. 24,000 calls and 20,000 puts so far. February 80 calls are the most actives, with some investors apparently selling premium as the stock falls below the $80 level. 6,180 contracts traded. Feb 87.5 puts are the second most active in VMW. 4,445 contracts changed hands.

Discover Financial (NYSE:DFS) drops 27 cents to $37.79 and options volume on the stock is running 5X the daily average. About 10,000 puts and 1,700 calls traded on the credit card company so far. The flow is focused on the March 37 puts, which are 2.1 percent out-of-the-money and expiring in 45 days. The top trade is a 1400-lot for 90 cents per contract when the market was 80 to 90 cents. 8,750 contracts traded against 33 in open interest. No news on the stock to explain the increased put activity in DFS today. Earnings expected around March 20.

Unusual Volume
Keryx Biopharmaceuticals (NASDAQ:KERX) options volume is running 4X the (22-day) average, with 43,000 contracts traded and put volume accounting for 72 percent of the volume.

US Airways (NYSE:LCC) options volume is 2.5X, the average daily, with 41,000 contracts traded and call volume representing 99 percent of the activity.

VM Ware (NYSE:VMW) options volume is running 5X the average daily, with 36,000 contracts traded and call volume accounting for 54 percent of the activity.

Increasing options activity is also being seen in Hess (NYSE:HES), NetApp (NASDAQ:NTAP), and Tyson (NYSE:TSN).

Implied Volatility Mover
Implied volatility in the options on Citrix Systems (NASDAQ:CTXS) is moving higher ahead of earnings. The maker of virtualization systems and software is down $2.72 to $68.69 in the wake of disappointing earnings from peer VMW are (NYSE:VMW) and ahead of its own report, due out after the closing bell tomorrow. Trading in the options on the stock is picking up ahead of the news. 17,000 calls and 3,400 puts so far. February 70 calls are the most active and implied volatility in CTXS options is up 25 percent to 50.5.

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