Hot Option Plays: Stock Market Averages Battle Back And Finish Mixed After Hours

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After Hours 03-27-2013
Stock market averages battled back from early weakness and finished mixed Wednesday. Losses in the euro and the Eurozone equity markets set the table for cautious trading at the open. The euro dropped .7 percent to 1.277 and fell to four-month lows against the dollar as Italian bond yields ticked higher. The increase comes as the country struggles to form a government almost one month after indecisive elections. On the domestic news front, the only economic stat of the day was a report on Pending Home Sales. The data showed a decline of .4 percent for February. A 2 percent increase was expected. Stock market averages had already fallen into the red ahead of the report and there was relatively little reaction to the headline. However, the Dow Jones Industrial Average had trimmed its loss to 50 points through midday and some end-of-quarter “window dressing” might have affected late-day market action as well. Tomorrow is the last day to square positions before the end of the first quarter. At the closing bell, the Dow was down 34 points and 86 points from session lows. The NASDAQ added 4 points.

Bullish
Tesla Motors (TSLA) might be a name worth watching in coming days. The company’s founder and CEO Elon Musk sent out a tweet to his followers earlier in the week saying the company was going to make an exciting announcement on Thursday, but then pushed it back to Tuesday of next week. The stock was up 30 cents to $38.16 ahead of the news today. Meanwhile, 18,000 calls and 4,165 puts traded on the electric vehicle-maker. The largest trades were part of a spread, in which the investor bought 5,000 April 40 calls on the stock for 60 cents and sold 5,000 April 45 calls at 2.5 cents. The spread traded, for 57.5 cents, traded on ISE and data from the exchange is consistent with an opening spread purchase. If so, it’s a short-term play, as April options expire in 23 days. A short seller with a position in TSLA might have initiated the spread as a type of hedge ahead of the announcement. A large chunk (65 percent of float) of Tesla shares was in the hands of short sellers as of 12/31/2012.

Bullish trading was also seen in Southwest Energy (NYSE:SWN), Intel (NASDAQ:INTC), and Diana Shipping (NYSE:DSX).

Bearish
Oracle (NASDAQ:ORCL) shares were up 41 cents to $31.95 Wednesday and are attempting to stabilize after losing nearly 12 percent since reporting earnings a week ago. Shares of the software-maker were up today and the most active options in ORCL were the April 31 puts, which are 3 percent out-of-the-money and expiring in a little over three weeks. 13,124 contracts traded against 9,299 in open interest. The top trade was a 1250-contract block for 31 cents per contract when the market was 30 to 31 cents. At about the same time, a 1000-contract block traded for 32 cents apiece. It’s not clear what motivated the increased interest. Some investors are possibly taking protective put positions in ORCL for fear of further losses in the shares over the next few weeks.

Bearish trading was also seen in Xilinx (NASDAQ:XLNX), YPF Sosiedad Anonima (NYSE:YPF), and American Axle (NYSE:AXL).

Index Trading
Trading was choppy Wednesday, but at the end of the day, volumes were light and things were little changed. The S&P 500 dropped .92 points to 1,562.85 and remains within striking distance (2.3 points) of record levels. Meanwhile, CBOE Volatility Index (.VIX), which tracks the expected or implied volatility of S&P 500 options, was up .38 to 13.15. Overall options in SPX, VIX and other index products was just 619K calls and 452K puts, or 62 percent the recent daily average, according to Trade Alert data. The low volume stands in stark contrast to last week, when VIX had a record-setting trading day Tuesday when 1.39 million contracts traded in the product.

ETF Action
SPDR Financial Fund (XLF) was off 9 cents to $18.16 and put volume in the exchange-traded fund trounced call activity Wednesday. 219,000 puts and 11,000 calls traded in XLF today. The top trade was part of a spread in which the investor apparently bought 15,000 May 17 puts on XLF for 14 cents, sold 30,000 May 16 puts at a nickel, and bought 15,000 May 15 puts at 2 cents. The activity has all the characteristics of a May 15 – 16 – 17 put butterfly spread for 6 cents, 15000X. If so, it’s an advanced options play that will offer its best payoff if XLF falls to $16 (11.9%) through the May expiration. A fund manager with holdings in financial names might have initiated the spread as a type of short-term hedge. XLF is one of nine sector funds and holds all of the financial-related names from the S&P 500.

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