Hot Option Plays: Market Trending Up After Hours

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Cusick’s Corner 02-08-2013 After Hours
When you look out at the landscape at the end of this week, there’s weakness in the Euro, FXE, and Crude, USO, and the bears are getting a nice treat in these markets. But this has not impacted the Equities, they are staying bullish and it looks like the market wants to grind up to new highs, S&Ps to ~1530. Tech really broke out today and right now any little pullback and hold, ~2765 on the NASDAQ, and then any resumption to the upside could be really solid bullish action for the Tech sector. The bulls are in control at this stage so I am not fading this motion. Have a great weekend.

Stock market averages opened higher and then moved mostly sideways through the remainder of the session Friday. Economic data helped after a report released early today showed the nation’s Trade Balance shrinking 20.7 percent to $38.5 billion in December, led by record exports of petroleum. A separate report on Wholesale Inventories is down .1 percent in December, compared to expectations for an increase of .3 percent. Meanwhile, LinkedIn (LNKD) shares surged 21.3 percent on the heels of its earnings report. Activision Blizzard (NASDAQ:ATVI) and AOL were also up on earnings. Moody’s (NYSE:MCO), Nuance (NASDAQ:NUAN), and Riverbed Technology (NASDAQ:RVBD) saw post-earnings weakness. Elsewhere, action was mixed across Asia, but European equity markets were mostly higher after the losses suffered on the heels of ECB commentary yesterday. The euro is down another .2 percent to 1.3367 on the dollar. Crude oil gave up early gains, falling 3 cents to $95.80, and gold lost $3 to $1668.5. On Wall Street, the Dow was up 40 points midday and finished with a 49-point gain. The NASDAQ added 28.7.

Bullish
Zynga (ZNGA) shareholders enjoyed a good week. Shares moved higher during the past four trading sessions and rose nearly 29 percent from last Friday. Earnings were reported Tuesday afternoon and the news gave shares a lift Wednesday. The stock moved higher again Thursday and then rallied 34 cents to $3.43 on surging volume of almost 100 million shares today after peer LinkedIn delivered stronger-than-expected quarterly results. Options volume was also impressive. 134,000 calls and 36,000 puts traded in the San Francisco, CA social media company. February 3, February 3.5, March 3, and March 3.5 calls were the most actives in the name and implied volatility in ZNGA options was up 20 percent to 75.

Bullish trading was also seen in MannKind (NASDAQ:MNKD), Southwest Airlines (NYSE:LUV), and Game Stop (NYSE:GME).

Bearish
Emerson Electric (NYSE:EMR) added 3 cents to $57.50 and options volume on the St. Louis-based electrical and engineering company was 2.5X the daily average. 6,940 puts and 1,625 calls traded on the stock. The top trade was a 1,300-contract block of February 57.5 puts for 65 cents per contract when the market was 55 to 65 cents. At the end of the day, 5,350 contracts changed hands against 859 in open interest. The activity is somewhat unusual because the contract is at-the-money and expires at the end of next week. March 57.5 puts were the second most actives in EMR. 903 contracts changed hands. The company reported earnings on Tuesday.

Bearish trading was also seen in Sandridge Energy (NYSE:SD), Target (NYSE:TGT), and Zagg (ZAGG).

Index Trading
Overall options volumes picked up a bit in the index market Friday. 591,000 calls and 714,000 puts traded on the S&P 500 Index (.SPX), S&P 100 Index (.OEX), and other cash index products, which was the most volume on the week. The S&P 500 rallied to new 5-year highs of 1,518.31 shortly after the open and after a day of mostly sideways, choppy action, finished up 8.54 points to 1,517.93. CBOE Volatility Index (.VIX), which tracks the expected volatility priced into SPX options, lost .48 to 13.02 on the day and added .12 on the week. The most actively traded index contracts were the VIX March 25 calls, Feb 15 calls, March 16 puts and Feb 14 puts.

ETF Action
SPDR Retail Trust (XRT) added 53 cents to $58 and a March 60 – 64 put spread is sold on the exchange-traded fund at 26 cents, 30000X. The investor sold 30,000 Mar 64 puts for 36 cents and bought 30,000 Mar 60 puts at 10 cents. Open interest in XRT March 64 puts is almost 160,000 contracts. There’s 140,000 of open interest in the March 60 puts. Looking at trade history, most of the OI is from a massive Mar 60 – 64 put spread, bought for 50 cents, 110,000X, to open on January 24. Shares have rallied nearly $2 since that time and today’s spread trader was probably liquidating some of those spreads for fear of further losses in the position if the retailers continue to rally through the March expiration.

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