Hot Option Plays: Can The Builders Sustain The Move? Midday
Cusick Corner 04-08-2013 Midday
The market continues to stay in a range going into the Midday and there has not been much of a break from the grinding trade that we saw on Friday. The market currently appears to be comfortable with the news that has been hitting the wire. And coming into earnings season, it looks like the bid is content to stick around too and might look to nibble into the lower end of a range. The action in the Materials, XLB, and Tech, QQQ/XLK, continues to lag so keep an eye on these sectors. What has not been lagging is Home Builders, XHB; I will be keeping a close eye on this run to see if there is some resistance that kicks in at these levels. See you After Hours.
Stock market averages are lower on a light news day and low volume Monday. With no economic data to guide investors, trading was steady early after volatile action in the prior trading session. Stocks moved broadly lower Friday after a report on March jobs fell well short of economist expectations. Now, some of the focus will shift to earnings. Dow component Alcoa (NYSE:AA) unofficially kicks off the reporting season after the closing bell. Some of the big banks report towards the end of this week and the pace of earnings reports will begin to pick up the following week. Elsewhere, markets were mixed throughout most of Europe and Asia. Crude oil is up 12 cents to $92.82 and gold dropped $7.5 to $1568.50. On Wall Street, pre-earnings jitters are possibly affecting market action. The Dow Jones Industrials are down 50 points and the NASDAQ gave up 2. CBOE Volatility Index (.VIX) is off .04 to 13.88. Overall trading volumes are very light to start the week. 2.4 million calls and 2.3 million puts have traded across the exchanges through 11:30am ET.
Vodafone (NYSE:VOD) is up 23 cents to $28.37 and options order flow on the telecomm is interesting today. 38,000 calls and 2,000 puts traded on the stock so far. Spread trading is driving much of the activity. For example, one investor bought the October 29 – 33 call spread on VOD for 98 cents, 5000X. That is, they bought 5,000 October 29 calls for $1.37 and sold 5,000 Oct 33 calls at an average of 39 cents. If so, the activity appears to be reflecting a bullish view on the stock through mid-October. VOD saw a spike to $29.41 per share last Tuesday on a Bloomberg report that Verizon or AT&T might be interested in the company.
Call options on Huntsman (NYSE:HUN) are busy for a third day. May 19 and 20 calls on the Salt Lake City, UT chemicals company saw interest Thursday. Friday, investors were again focused on the May 19 calls. The activity created 4,366 in new open interest and, at 15,844, the May 19 call is now the second largest block of open interest in HUN. The activity continues today. The stock is down 18 cents to $18.02 and more than 5,200 May 19 calls have traded in HUN.
Tesoro (NYSE:TSO), an oil refiner, is down 47 cents to $52.77 and options order flow on the stock is lopsided today. 7,010 puts and 665 calls traded in TSO so far, a ratio of more than ten-to-one. A spread trade drove much of the activity, after an investor bought 2,500 May 48 puts on TSO for $1.21 and sold 4,000 May 45 puts at 61 cents per contract, according to a source on the exchange floor. The position looks opening and seems to be expressing the view that the stock might fall below $48 through the May expiration, but not significantly below $45. An investor might have set up the spread as a type of short-term hedge against stock on fear of further losses. TSO is down nearly 10 percent month-to-date.
Seabridge Gold (SA) saw a flurry of call activity last week, but put options on the Toronto-based miner are busy today. 14,400 Jan 13 calls traded in the name Thursday. The stock is down 10 cents to $13.51 Monday and options volume is 9,500 puts and only 150 calls. Longer-term January 2015 puts at the 10 strike are the most active. 6,300 traded. Another 3,140 of the January  $10 calls also changed hands. It’s not clear what is motivating the increased put activity today or the high call volume Thursday. Implied volatility in SA options is moving up 5 percent to 51.
Best Buy (NYSE:BBY) options volume is running 2X the (22-day) average, with 63,000 contracts traded and call volume accounting for 72 percent of the volume.
Goodyear Tire (NYSE:GT) options volume is 9.5X, the average daily, with 34,000 contracts traded and call option volume representing 97 percent of the activity.
Mannkind (NASDAQ:MNKD) options volume is running 2X the average daily, with 20,000 contracts traded and call volume accounting for 54 percent of the activity.
Increasing options activity is also being seen in Gold Fields (NYSE:GFI), Citrix Systems (NASDAQ:CTXS), and Denbury Resources (NYSE:DNR).
Implied Volatility Mover
Goodyear Tire (NYSE:GT) is seeing unusual options activity. Shares are up 8 cents to $12.24 and total options volume on the tire-maker is about 33,000 calls and only 1,100 puts. May 13 calls are the most active. 25,640 traded against 729 in open interest. April 12 and 13 calls are the next most actives and 30-day implied volatility in GT is moving up 34 percent to 45. No obvious news on the stock to explain the heightened activity in Goodyear Tires today.
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