Hot Option Plays: Narrow Range Midday

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Cusick’s Corner 01-30-2013 Midday
The data was mixed, ADP was up but the GDP was down. Now this might have been telegraphed by the Consumer Confidence data yesterday, but is does put the spotlight firmly on the Fed announcement and statements. The market is grinding a little lower but has firmed into the Midday which is somewhat positive for the longs and could be a squeeze opportunity on the shorts if the Fed announcement is status quo. See you After Hours.

Market action is mixed again Wednesday, with a disappointing reading on economic growth weighing on sentiment in early trading. GDP contracted at an annual rate of .1 percent in the fourth quarter. Economists were expecting an increase of 1 percent and the decline marks the first period of contraction for the US economy in several years. Separately, ADP reported that the US economy added 192,000 private sector jobs in January, which was 17,000 more-than-expected. However, December numbers were revised down to 185,000 from 215,000. Stock market averages dipped at the open and despite post-earnings gains in a number of large caps like Amazon.com (NASDAQ:AMZN), Phillips 66 (PSX), and ADT. Elsewhere, Japan’s Nikkei jumped 2.3 percent on a weaker yen and helped pace a broader advance across Asia’s equity markets, but European markets are mostly lower and the euro is up .6 percent to 1.357 on the dollar. Crude oil ticked a nickel higher to $97.62 and gold rallied $19 to $1680. On Wall Street, the Dow Jones Industrial Average is down 10 points and the NASDAQ is little changed. CBOE Volatility Index (.VIX) is showing signs of life, up .61 to 13.92. Overall trading in the options market is running about the typical levels, with 2.9 million calls and 2.6 million puts traded through 11:00am ET.

Bullish Flow
Staples (NASDAQ:SPLS) shook off early weakness and is trading up 9 cents to $13.75 into midday Wednesday. Options volume on the office supplies retailer is running 5.5X the daily average after about 36,000 calls and only 250 puts traded on the stock. Much of the activity surfaced one hour into the trading session when September 15 calls on SPLS saw a flurry of activity. The largest trade is a 10,000-contract block for 80 cents per contract when the market was 75 to 80 cents. More than 30,000 September 15 calls now traded on Staples against 215 in open interest. No news on the stock today, but SPLS saw active trading two days ago after Goldman Sachs upgraded the stock to Neutral from Sell.

Freescale Semiconductor (FSL), an Austin, TX broadline semiconductor company, is trading up $2.10 to $14.49 on increasing volume of 3.2 million shares in the wake of its latest profit report. Options volume is running 5.5X the daily average. 8,380 calls and 250 puts so far. Recent trades include 4,000 June 15 calls on FSL for an average of $1.425 per contract when the market was $1.25 to $1.45. Open interest is zero contracts and more than 5,000 have traded. February 12, March 13, and March 15 calls are the next most actives in FSL Wednesday.

Bearish Flow
Lockheed Martin (NYSE:LMT) drops 79 cents to $89.06 on higher share volume of 1.2 million and options on the aerospace and defense company are busy today. 8,280 puts and 740 calls traded on the stock so far. The top trade is a 1,200-lot of March 85 puts traded for $1.20 on the all-electronic International Securities Exchange [ISE] when the market was $1.15 to $1.25. An investor bought the puts, to open, according to ISEE data. 6,648 contracts now traded against 2,009 in open interest. March 87.5 puts are the second most active in LMT. 989 contracts changed hands. The increased put activity comes a couple of days after a Reuters report indicated that faulty manufacturing was possibly to blame for grounding of F-35 Fighter jets a couple of weeks ago.

Market Vectors Russia Fund (RSX) drops 29 cents to $30.68 and options on the ETF are busy today. 7,500 puts and only 56 calls so far, which is 2.5X the daily average options volume for the product. Much of the volume was in a single transaction when 6,600 March 30 puts traded on RSX for an average of 32.5 cents when the market was 25 to 35 cents. Open interest is 1,860. An investor might be opening a position in March downside puts on RSX on concerns about the short-term outlook for Russia’s equity markets.

Unusual Volume
Amazon.com (NASDAQ:AMZN) options volume is running 2X the (22-day) average, with 161,000 contracts traded and put volume accounting for 50 percent of the volume.

Chesapeake (NYSE:CHK) options volume is 2.5X, the average daily, with 134,000 contracts traded and call volume representing 64 percent of the activity.

Keryx Pharmaceuticals (NASDAQ:KERX) options volume is running 2.5X the average daily, with 36,000 contracts traded and call volume accounting for 50 percent of the activity.

Increasing options activity is also being seen in Staples (NASDAQ:SPLS), H&R Block (NYSE:HRB), and Marathon Petroleum (MPC).

Implied Volatility Mover
Implied volatility in the options on Research In Motion (NASDAQ:RIMM) is easing, as the company launches its highly-anticipated Blackberry 10 device Wednesday. Investors digested a host of information related to the new device, including pricing plans and availability. RIM also announced that it is changing its company name to Blackberry, effective immediately. The early reaction was negative, as shares have erased morning gains and are down $1.12 to $14.54. Trading in the options is brisk. More than 300,000 contracts so far. Meanwhile, 30-day implied volatility is down 13 percent to 88, now that some of the uncertainty about BB10 has cleared.

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