Hot Option Plays: Earnings Unofficial Start After Hours

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Cusick’s Corner 04-08-2013 After Hours
Earnings are kicking off tonight when Dow Jones Industrial component Alcoa, AA, announces after the close today. Now this is a grinding metal stock but they have been coming off their worst levels so far this year. This stock has been in the range of $8-$9 for the last year and a half, if they reassess Aluminum demand then we might see a stock with some short-term momentum. Now the weekly options in AA are pricing in a potential move of ~$.30 into the earnings. Let’s see what happens after the close. I am keeping an eye on the Retail sector, XRT. This sector has been able to hold up in spite of weak data. Another breakdown and inability to hold support, $69 on XRT, could signal some potential mid-term weakness in play. See you Midday.

Market action has turned missed on a light news day and low volume Monday. With no economic data to guide investors, trading was steady early after a volatile reaction to March jobs report sent stocks skidding Friday. Stock market averages drifted lower again through midday today, but have strengthened heading into the afternoon session. Some of the focus is shifting to earnings, with Dow component Alcoa (NYSE:AA) unofficially kicking 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. The Dow Jones Industrials are now up 4 points in slow trading. With an hour left to trade, the NASDAQ has added 7.

Bullish
General Electric (NYSE:GE) is up 12 cents to $23.05 and among 17 Dow stocks trading higher, as market breadth has turn marginally positive heading into the final hour of trading Monday. Interesting options trades on GE today include an 18000-contract block of January 30 calls that expire in 2015 for 52 cents per contract. An investor bought the call options, according to a source on the exchange floor. More than 20,000 traded. Open interest in the strike is 54,800 and most of that OI is from March 13 and 15, when buyers were paying 51 and 57 cents per contract to open positions. If so, today’s hefty block of long-dated 30 calls might add to the open interest and, if so, seems to be expressing a bullish view for GE through 2013-2014.

Bullish trading was also seen in Good Year (NYSE:GT), Vodafone (NYSE:VOD), and Riverbed Technology (NASDAQ:RVBD).

Bearish
Commonwealth REIT (CWH) is seeing high put volume today. Shares of the office buildings Real Estate Investment Trust [REIT] are up 43 cents to $22.45. Meanwhile, 33,000 puts and 250 calls traded in the name. The top trades are part of a put calendar spread, in which the investor sold 14,000 May 20 puts on CWH at 55 cents and bought 14,000 June 20 puts for $1.40. If so, the spread, for 85 cents, might be expressing the view that CWH might drift lower, while holding above $20 through the May expiration, but then drop to less than $20 by mid-June.

Bearish trading was also seen in Ironwood Pharmaceuticals (IRWD), Zions Bancorp (NASDAQ:ZION), and Seabridge Gold (SA).

Index Trading
Overall volumes are very light today, as some players are probably taking a wait-and-see approach after sour jobs data sent stocks skidding Friday and ahead of the earnings reporting season. The S&P 500 (.SPX) is up 4.34 points to 1557.62 and CBOE Volatility Index (.VIX) is down .38 to 13.54. Total volume in SPX, VIX and other cash indexes so far is 334K calls and 290K puts, or less than half the expected volume, according to Trade Alert data. Total volume across all products is 4.5 million calls and 4.1 million puts, which is running about 72 percent the normal levels.

ETF Action
WisdomTree India Earnings Fund (EPI) sees increasing options volume Monday. EPI, which represents ownership in 220 different companies that trade in India and that are also profitable (have earnings), are up 7 cents to $17.59. On the options front, 17,000 calls and 420 puts have traded on the ETF. The flow is heavily concentrated in July 19 calls and included a morning buyer of 15,000 contracts for an average of 26 cents per contract, according to a source on the exchange floor. It appears to be a new position and, in fact, will create the largest block of open interest in the name. If so, the activity seems to be expressing the view that EPI could be trading north of $19 by the July expiration.

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