Hot Option Plays: Not Bucking The Trend After Hours

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Cusick’s Corner 03-14-2013 After Hours
Keep an eye on the Dollar’s strength, UUP, which has been a nice catalyst for domestic equities, S&Ps, but has put pressure on the Commodities space, DBC/JJG. I will keep a close eye on the basing action in the Dollar, if it trends to the upside this could be a nice catalyst for the domestic equity bulls and as we head into planting season, could add some potential pressure on Commodities. This action in the Dollar could potentially put some more pressure on foreign issues as well. Tomorrow is expiration for equity options so please have a plan for all your March positions early in the day. See you Midday.

Stock market averages opened higher, held gains through midday, and finished near session highs Thursday. Overseas, equity markets were mostly higher across Asia and also saw gains across the Eurozone, including a 2.2 percent bump in Spain’s MIB Index. Domestic economic news also helped after a report released early showed jobless claims declining by 10,000 to 332,000 last week. Economists were expecting an increase to 350,000. Separately, the Producer Price Index [PPI] was up .7 percent for February. Economists were expecting the gauge of wholesale inflation to increase .6 percent. Crude oil was up 54 cents to $93.06 and gold was flat at $1588. Attention is on bank stress test results and earnings from Aeropostale and Krispy Kreme after the closing bell. The bullish bias on Wall Street held ahead of the news. The Dow Jones Industrial Average gained another 84 points and extended its winning streak to 10 consecutive days – the longest since 1996.

Bullish
Williams Companies (NYSE:WMB) was up 62 cents to $35.42 in active trading of 9 million shares after weekly inventory data fueled gains in natural gas prices today. Nat gas was up 13 cents to $3.83. Meanwhile, Williams Companies, a Tulsa, OK, oil and natural gas producer, ticked higher and options volume on the stock was 3X the daily average. Roughly 35,000 calls and 5,100 puts traded on the ticker. January 40 calls were the most active. 10,000 traded. Jan 45, Mar 37, and Aug 39 calls were the next most actives in WMB, as some investors were possibly taking positions in upside calls in the name on hopes the recent run higher will continue in the weeks/months ahead.

Bullish trading was also seen in Newscorp (NWSA), Rite Aid (NYSE:RAD), and Rackspace (NYSE:RAX).

Bearish
Suntech Power (NYSE:STP) is having a rough week. Shares dropped 16 cents to 67 cents today and have lost 46.8 percent since Friday. The big percentage loss is being driven by concerns about possible bankruptcy on media reports the company has almost run out of cash – New York Times. The prospects seem to be dimming for the solar energy company and options volume on STP jumped to 3.5X the daily average. 36,000 puts and 8,200 calls traded on the ticker. March 1 and .5 puts, which expire after tomorrow, were the most actives. April .5 puts, Mar .5 calls, Apr 1 puts, and Mar 2 puts on STP were busy today as well.

Bearish trading was also seen in Morgan Stanley (NYSE:MS), Aeropostale (NYSE:ARO), and Qihoo 360 Tech (QIHU).

Index Trading
Trading was active in the index market, and volatility fell Thursday. Today was the last day to trade March options on the S&P 500 Index (.SPX) and many other cash indexes before settlement values are computed Friday morning. A total of 2.2 million contracts traded in SPX and other index products. Meanwhile, CBOE Volatility Index (.VIX), which doesn’t have its expiration this week but rather next week this time, saw another move to fresh multi-year lows after falling to 11.05 late in the day. The index finished down .53 to 11.30 and lows not seen since April 2007. Meanwhile, trading in the VIX pit was busy. 630,000 calls and 252,000 puts traded on the index.

ETF Action
Options on US Natural Gas Fund (UNG) were busy, as prices in the natural gas market firmed up on weekly inventory data. Gas was up 13 cents to $3.83 and has now gained nearly 19 percent since mid-February. Meanwhile, UNG, which tracks the price of the commodity through futures contracts, was up 78 cents to $21.04 and to its best levels since early-December. On the options front, 33,000 calls and 23,000 puts traded on the natural gas ETF. April 21 calls, which are now at-the-money and expiring in five weeks, were the most active. 4,700 contracts traded. Apr 20 and 22 calls on UNG were busy today as well.

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