Hot Option Plays: Stock Market Averages Edge Higher Midday

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Cusick’s Corner 03-22-2013 Midday
When there’s weakness in leadership sectors, there’s a potential red flag. I mentioned the weakness in Financials yesterday, XLF, but we saw a decent break in Transports, IYT, (thanks FDX) and any continuation could be a negative catalyst. I mentioned the strength in the Metals, more specifically Silver, SLV, but this should be monitored because it appears that institutions have not been the driver. I am going out to San Francisco this afternoon for an optionsXpress workshop that starts Saturday morning. If you are in the San Francisco area, please join us or you can jump online and attend from home because I will be webcasting the entire workshop. All the details about the in-person workshop or live webinar are on the Educate tab under the Events page. See you After Hours.

Stock market averages are holding gains on a light news day Friday. No economic data is slated until a Tuesday morning Durable Goods report. Meanwhile, stock index futures seemed to follow the EUR/USD currency pair higher early-Friday on hopes for a decision related to the bailout of Cyprus. The country is working to secure 10 billion euros in aid before the ECB cuts a liquidity lifeline to the debt troubled country Monday. Media reports suggest an announcement could come later today. The euro started strengthening about two hours before the opening bell and is now up .55 percent to 1.2971 on the dollar. European equity markets are mostly higher as well. Crude oil is up 56 cents to $93.01 and gold lost $6 to $1608. A handful of names are also out with earnings (see today’s Implied Volatility Movers), but beyond that, there’s not a lot of news to guide the market. The Dow is holding a 77-point gain and the NASDAQ added 14. CBOE Volatility Index (.VIX) is off .63 to 13.36. Overall trading in the options market is light heading into the weekend, with 2.3 million calls and 2 million puts traded across the exchanges through 11:00am ET.

Bullish Flow
Modelez (MDLZ), a Deerfield, IL snack foods company, is up $1.21 to $29.77 in heavy trading of 17.5 million shares on news Nelson Peltz has taken a stake in MDLZ and Pepsico (NYSE:PEP). Trading is brisk on both names. Pepsico rose $2.30 to $78.45 in active trading of 3.6 million. Meanwhile, options volume in MDLZ is running 4X the daily average. 15,000 calls and 1,900 puts traded on the ticker so far. April 30, April 28 and May 31 calls are the most actives and 30-day implied volatility in the options on the stock is up 10 percent to 16.

Nordic American Tankers (NYSE:NAT) is up 83 cents to $11.47 in very active trading of 1.4 million shares. It’s not clear what is motivating the higher volume. Expected volume in the stock through midday is less than 300K shares. Nevertheless, the stock is up and has now rallied 27.8 percent in the past eight trading days. At the same time, options volume in NAT is running 5X the daily average. 3,600 calls and 830 puts so far. April 10, 11 and 12 calls are seeing the bulk of the flow.

Bearish Flow
Intel (NASDAQ:INTC) is up 19 cents to $21.23 on relatively light volume of 10.5 million shares and put options on the world’s largest chipmaker are busy today. 43,000 contracts traded, which is about 3X the day’s call volume. Most of the flow is in April 21 puts and included a buyer of 30,000 contracts for 43 and 44 cents per contract, according to a source on the exchange floor. It’s not clear what is motivating the put buying, as shares are steady and there are no bearish headlines. April 21 puts on INTC are 23 cents out-of-the-money and expiring in four weeks. Some investors are possibly taking positions in protective puts on Intel after another tech giant – Oracle – dropped nearly 10 percent yesterday on an earnings miss. Intel is due to report around mid-April, possibly inside of the April expiration.

Arm HOLDINGS (NASDAQ:ARMH) sees increased put activity for a second day. As noted in yesterday’s midday report, April 38 and 39 puts were busy on the stock yesterday following an analyst downgrade. The flow created 8100 contracts of new open interest in put options on the stock (compared to +418 calls). The activity continues today and might be adding to that open interest. Apr 38s are the most active. 4,550 traded. May 35 and 36 puts are the next most actives in the British chipmaker.

Unusual Volume
Nike (NYSE:NKE) options volume is running 2.5X the (22-day) average, with 22,000 contracts traded and call volume accounting for 99 percent of the volume.

Eldorado Gold (EGO) options volume is 14X, the average daily, with 38,000 contracts traded and calls volume representing 95 percent of the activity.

Tiffany (NYSE:TIF) options volume is running 3X the average daily, with 22,000 contracts traded and put volume accounting for 61 percent of the activity.

Increasing options activity is also being seen in Pepsico (NYSE:PEP), Arm Holdings (NASDAQ:ARMH), and St. Jude Medical (NYSE:STJ).

Implied Volatility Mover
Implied volatility in the options on Tiffany (NYSE:TIF), Nike (NYSE:NKE), Micron Technology (NYSE:MU) and Tibco Software (NASDAQ:TIBX) is moving lower. All four companies released earnings since the closing bell yesterday. TIBX is the only loser in the group – falling $3.65 to $19.52 in heavy trading of 10.5 million shares. 2,300 calls and 6,070 puts traded in the name and implied volatility is down 33 percent to 35. Meanwhile, TIF is up $1.91 to $69.82 and options volume is 8,500 calls/11,000 puts. Implied volatility dropped 32 percent to 22.5. Nike shares gained $6.42 to $60.02 and more than 50,000 NKE options traded (28K calls and 23K puts). IV in the options dropped 30 percent to 20. Lastly, Micron Tech (NYSE:MU) rallied 99 cents to $10.06. 52,000 calls and 17,000 puts traded on the chipmaker. Implied volatility in MU is also seeing post-earnings crush, down 24 percent to 40.

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