Hot Option Plays: Watching 1500 Midday

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Cusick’s Corner 02-26-2013 Midday
The Fed Chief was speaking, AAPL has its shareholder meeting tomorrow, Italy will have a bond offering (5 & 10 YR), and Durables come out tomorrow, any combination could spike volatility in the markets. With all these macro events occurring, I will be watching the resistance in the S&Ps at the 1500-1505 level. We are getting some decent snowfall in Chicago right now so I am trying to get the team out, more tomorrow in the Midday.

Trading was mixed through midday, but stock market averages finished higher Tuesday. Home Depot (NYSE:HD) gained 5.7 percent and led the Dow Jones Industrial Average components in the wake of its earnings report. Economic data also helped after a report on Consumer Confidence was up to 69 for February, from 58.4 and well above expectations of 62. New Home Sales printed at an annual rate of 437K for January, from 378K and better than the 383K that was expected. However, trading turned sluggish after big losses were suffered across the stock market yesterday on reports Italy’s elections yielded a hung parliament. The concern seems to be that the political uncertainty in Italy will thwart recent efforts to bring stability to the financially-troubled Eurozone region. In the US, the focus was also on Bernanke’s testimony to Congress Senate today, as well as ongoing anxiety about the potential impact from the March 1 sequester deadline facing Washington. Yet, after the steep losses suffered Monday, the overall tone of trading improved in afternoon action and stock market averages scored gains in the second half of trading. At the closing bell, the Dow Jones Industrial Average was up 116 points and 18 points from session highs. The NASDAQ erased midday losses and closed up 13.4 points.

Bullish
Intel (NASDAQ:INTC), the world’s largest chipmaker, was the Dow’s third best gainer today behind Home Depot and Hewlett Packard (NYSE:HPQ). The stock edged up 35 cents to $20.38 in active trading of 64.8 million shares. Options on Intel saw active trading as well. 106,000 calls and 28,000 puts traded on the day, a ratio of nearly four-to-one. March 22 calls, which are 6.9 percent out-of-the-money and expire in 17 days, were the busiest. 44,000 contracts changed hands. March 21, Apr 22, Weekly 21, and Weekly 20 calls were the next most actives in Intel. It’s not clear what motivated the higher call volumes in the chipmaker Tuesday. The stock has not performed well lately, falling 9.3 percent since earnings were reported on January 17.

Bullish trading was also seen in Radian (NYSE:RDN), Chesapeake (NYSE:CHK), and Level 3 (NASDAQ:LVLT).

Bearish
Smithfield Foods (NYSE:SFD) is off 3 cents to $22.82 in active trading of 1.7 million shares after peer meat producer Tyson Foods (NYSE:TSN) delivered cautious commentary at an Agribusiness conference Tuesday. TSN shares dropped 84 cents to $22.42. On the options front, volume in SFD was 4X the daily average. 4,700 puts and 2,975 calls traded on the ticker. April 22 puts were the most active. 2000 traded against 1,405 in open interest. Another 1,300 of the Apr 23 puts changed hands and 30-day ATM implied volatility in SFD options was up 9 percent to 40.5.

Bearish trading was also seen in Clearwire (NASDAQ:CLWR), VALE, and Biomarin Pharmaceuticals (NASDAQ:BMRN).

Index Trading
It was a busy day in the CBOE Volatility Index (.VIX) trading pit on the Chicago Board Options Exchange. After rallying 4.82 points, or nearly 35 percent, to 18.99 Monday, the market’s “fear gauge” is down 2.04 points to 16.95 (with fifteen minutes left to trade). More than 1.3 million options traded in the product. The flow includes about 865,000 calls and 445,000 puts. VIX April 20 and 25 calls are the most actives, with more than 140,000 traded in both. Those same contracts saw high volumes in late-January due to spread trading, in which some investors were buying the Apr 20s and selling the Apr 25s. Perhaps positions in the Apr 20 – 25 call spread are being opened again on concerns about additional market volatility over the next few weeks. Or, maybe some investors are closing out positions in bullish VIX spreads after the big move in the index yesterday.

ETF Action
SPDR Gold Trust (GLD) is up $1.91 to $156.25 after gold prices surged $27 to $1613.5 and scored the best gains so far in 2013. GLD, which is an exchange-traded fund representing ownership in the metal, is rallying on heavy volume of 16.6 million shares. Meanwhile, 148,000 calls and 113,000 puts have traded in the fund so far today. Mar 159 calls, which are now 1.8 percent out-of-the-money and expiring in 17 days, are the most actives in GLD. 14,800 traded against 14,169 in open interest. Lastly, implied volatility in GLD, as measured by GVZ Index, is off 1.85 to 15.63 and now well off last week’s high of 18.65.

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