Hot Option Plays: At The Ready After Hours

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Cusick’s Corner 03-06-2013 After Hours
Not much to say this After Hours, they just keep grinding into the close from the Midday levels. One of the more notable events today was the decline of the Yen, FXY, which has the Japanese markets ready for some decent upside, at least at the open overnight. Gold stocks, GDX/GDXJ, were on the move today to the upside and were able to hold into the close which has helped stabilize the shiny metal, GLD, at this stage. Consider keeping the powder dry right now. One note, we are coming up on Expiration next week. Traders with March positions should now be looking to manage these, whether it’s closing or rolling, have a plan of action in place before we round out the week. Also, tomorrow pre-market Claims data and Trade Balance will be released. After today’s solid ADP report, any ripple could ruffle the short-term bulls’ confidence so stay on your toes. See you Midday.

Trading was mixed into midday and stock market averages were range-bound in afternoon trading Wednesday. The underlying tone of trading remained positive early after the Dow rose to record highs yesterday and ADP reported this morning that the economy added 198,000 private sector jobs last month, which was about 50,000 more than was expected. Stock index futures had already moved into positive territory overnight, as Japan led Asia’s markets mostly higher and a drop in Spanish bond yields helped spur orderly trading across the Eurozone. Back in the US, a second economic report showed Factory Orders falling 2 percent in January and mostly in-line with expectations. The Fed’s Beige Book, which offers a qualitative assessment of economic activity, noted that government policy is restraining hiring and spending. Yet, the report held no major surprises and there was little reaction to the news. In the commodities market, crude oil prices were down 36 cents to $90.46, but gold gained $7.5 to $1582.50. Meanwhile, the Dow Jones Industrial Average was up 25 points midday and finished up 42. A $5.5 drop in Apple (NASDAQ:AAPL) weighed on the NASDAQ, which lost 1.8 points.

Bullish
Johnson Controls (NYSE:JCI) hit a high of $34.45 this morning and finished up 82 cents to $32.63, new 52-week highs, on heavy volume of 30 million shares following reports that the Milwaukee, WI auto parts company was mulling the sale of its interior unit. Late in the day, Johnson Controls denied the report and said it was considering the sale of its electronics unit. Trading in the options on the stock was busy amid the mixed headlines. 23,000 calls and 15,000 puts traded in JCI today. While more than 7,300 March 33 calls traded on the stock, making it the most active option in the name, March 32 and 33 puts on the stock were busy as well.

Bullish trading was also seen in Saks (NYSE:SKS), Yahoo (NASDAQ:YHOO), and MGM.

Bearish
Aeropostale (NYSE:ARO) dropped 31 cents to $13.28 and options volume on the teen apparel retailer was 6X the daily average after peer American Eagle Outfitters (NYSE:AEO) fell on earnings news. AEO was off $2.28 to $20.27 in the wake of the report. Meanwhile, ARO, which reports on March 14, moved lower as well. Options volume on the stock was 8,000 puts and 1,660 calls. March 13 puts, which are now 28 cents out-of-the-money and expiring at the end of next week, were the most active in ARO. 6,900 traded against 1,156 in open interest. Some investors were possibly opening protective put positions against stock on worries shares will come under pressure, like AEO, when Aeropostale reports earnings next Thursday – the day before expiration Friday.

Bearish trading was also seen in Sony (NYSE:SNE), Virgin Media (NASDAQ:VMED), and JDS Uniphase (NASDAQ:JDSU).

Index Trading
Overall, it was a quiet day in the equity and the options market Wednesday. The S&P 500 Index (.SPX) traded in a 7-point range and added 1.67 points to 1,541.46. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected or implied volatility of SPX options, ticked up .05 to 13.53. Yet, while the index saw relatively little movement on the day, trading in the VIX pit was very busy. 483,000 calls and 125,000 puts traded on the volatility index Wednesday. April 18 calls were the most active in the product. More than 101,000 contracts changed hands. April 17 and March 18 calls were the next most actives, as some investors are possibly taking interest in VIX upside calls to help hedge the risk of a possible uptick in volatility in the days/weeks ahead.

ETF Action
SPDR Retail Trust (XRT) saw more volume than usual. XRT, which is an exchange-traded fund that holds a basket of small and large retailer names, was down 24 cents to $68.44. Options volume was 5.5X the daily average. 106,000 puts and 42,000 calls traded on the ETF today. The top trades were part of a spread, in which the investor bought 20,000 April 68 puts on XRT and sold 40,000 April 64 puts, creating an advanced options play known as a 1X2 put ratio spread. The strategy is a bearish play, as the best profit happens if shares fall to $64 through the expiration. An investor with a large portfolio of retailing names might have initiated the spread to help hedge stock positions ahead of monthly same store sales results tomorrow, jobs data Friday.

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