Hot Option Plays: After Hours

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Cusick’s Corner 02-01-2013 After Hours

Stocks finished broadly higher, as investors digested this week’s final dose of economic stats Friday morning. The headline number showed the US economy adding 157,000 jobs last month and the unemployment rate increasing to 7.9 percent from 7.7 percent. Economists were expecting 180,000 new jobs and the rate of unemployed holding steady at 7.7 percent. However, December numbers were revised to show payrolls increased by 196,000 from 155,000. The day’s other economic news was mostly better-than-expected as well. University of Michigan Sentiment Index is up to 73.8 in January, from 71.1 and better than the 71.3 that had been expected. Construction Spending rose .9 percent in December and .4 percent more than expected. ISM Index of manufacturing activity for January rose to 53.1, from 50.2 and better than the 50.5 that had been expected. On the earnings front, Merck (NYSE:MRK) dropped 3.3 percent and was the biggest loser in the Dow Jones Industrial Average on the heels of its report. Hewlett Packard (NYSE:HPQ) also ticked lower. However, the other 28 components of the Dow finished higher and the industrial average added 149 points to close above 14,000 for the first time since October 2007.

Bullish
Teradyne (NYSE:TER), a North Reading, MA semiconductor equipment and materials company, was up 48 cents to $16.64 in active trading of 2.95 million shares Friday and rebounding after falling 5.1 percent since the company reported earnings on January 23. In options action, volume in TER was 6.5X the daily average. 8,885 calls and 290 puts traded on the stock. The top trade was a 5,200-lot of July 16 calls for $1.64 per contract on the International Securities Exchange, which was an opening buyer, according to data from the all-electronic ISE. At the end of the day, 6,625 contracts traded against just 1 contract in open interest. July 17 calls were the second most active in TER. 1,135 contracts changed hands. It’s not clear what motivated the interest, as there were no headlines on the stock to explain the increased call activity in Teradyne today.

Bullish trading was also seen in Allstate (NYSE:ALL), Verizon (NYSE:VZ), and Thermo Fischer (NYSE:TMO).

Bearish
Navistar (NYSE:NAV) added 36 cents to $26.45 and options volume on the stock was 2.5X the daily average, after 8,300 put and 760 calls traded on the Lisle, IL truck manufacturer. The top trade was a 1,220-lot of February 24 puts for 20 cents per contract when the market was 10 to 20 cents. At the end of the day, 5,147 Feb 24 puts traded on NAV against 524 in open interest and the market was 20 to 25 cents. February 25 and April 22 puts were the next most actives in the name. It’s not clear what motivated the activity, as the stock ticked higher and there were no obvious headlines to explain the apparent put buying. The company is due to report earnings around Mar 7 and well after the February expiration, which is in two weeks.

Bearish trading was also seen in Quanta Services (NYSE:PWR), Madnax (MD), and Mens Wearhouse (NYSE:MW).

Index Trading
CBOE Volatility Index (.VIX) fell sharply, as the S&P 500 Index (.SPX) rallied 15.06 points to 1513.17 and notched new five-year highs Friday. VIX, which tracks the expected or implied volatility priced into SPX options, has now lost 9.9 percent since Wednesday. Some investors might have been liquidating positions in SPX puts after the flood of economic releases this morning and as the S&P 500 continued to notch new multi-year highs. About 600,000 puts and 300,000 calls traded in the S&P 500 today. SPX April 1,450 and 1,470 puts were the most actives.

ETF Action
The largest block of options traded across the exchange Friday was in the SPDR Financials (XLF). The ETF, which represents ownership in shares of all of the financial-related companies included in the S&P 500, added 23 cents to $17.61 and set new multi-year highs. The big options trade in XLF was a 50,000-contract block of April 18 calls traded for 30 cents per contract. At the end of the day, nearly 64,000 XLF April 18 calls traded against 13,151 in open interest. Some investors might be opening positions in the upside XLF calls on expectations for further gains in shares of the big banks and brokers in the months ahead. XLF shares have already rallied 16.2 percent since mid-November and $18 calls on the ETF are now 2.2 percent out-of-the-money.

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