Hot Option Plays: Stock Market Averages Holding Gains Midday

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Cusick’s Corner 04-25-2013 Midday
The market continues to climb to new lofty levels but skepticism of this elevation seems to be the catalyst. In other words, complacency is not in play at this juncture which also means that trying to pick a top is not advised at this point. If there is going to be some pressure on the trend we would watch for a retracement back to support levels, 1577 on the S&Ps. Gold, GLD, on the other hand is bouncing back, and hitting some resistance, $141.50. It will be interesting to see if the new long entrants can continue the momentum to the upside after the wash out last week. I am also keeping an eye on Treasuries, TLT, after the rejection at the $123.5 level it will be interesting to see if the longs start to weaken especially if support is broken, $121.50 on TLT. See you After Hours.

Stock market averages are holding gains with help from economic news. A report released Thursday morning showed jobless claims unexpectedly falling to 339,000 last week, from 355,000 and much better than the 351,000 that was expected. Meanwhile, the barrage of earnings releases continues. Exxon Mobile (NYSE:XOM) and 3M (NYSE:MMM) are the biggest losers in the Dow Jones Industrial Average in the wake of their profit reports. However, a number of other large cap names, like UPS, Biogen (NASDAQ:BIIB), and Harley Davidson (NYSE:HOG), are seeing post-earnings gains. Elsewhere, Asia and Europe’s equity markets saw a day of relatively quiet trading Thursday. Crude is up another $1 to $92.43 and gold rallied $31 to $1455. On Wall Street, the Dow holds a 69 point gain and the NASDAQ added 27. CBOE Volatility Index (.VIX) is down .25 to 13.36. Overall options volumes are running at about the typical pace, with 4.7 million calls and 3.5 million puts traded across the exchanges through 12:00pm ET.

Bullish Flow
Petrobras (NYSE:PBR) is flat at $18.03 after a one-week 24.7 percent rally. While the stock appears to be taking a pause, trading in the options on the Brazilian energy company is very busy today. About 35,000 calls and 4,400 puts traded on the stock so far. More than 80 percent of the activity is in the May term and concentrated in 17 and 18 calls. One player bought 16,000 May 18 calls on PBR for 52 cents per contract, according to a source on the exchange floor. More than 17,000 traded and some of the activity might be rolling out of the in-the-money May 17 calls, where about 13,600 traded against more than 34,000 in open interest. That is, investors are adjusting positions up in strikes (from ITM to at-the-money May calls on PBR) after the recent jump in the stock.

Energy Transfer Partners (NYSE:ETP), a Dallas, TX natural gas and fuel storage company, sees a second day of increased call activity. A 5000-contract block of Sep 52.5 calls was bought-to-open on ETP yesterday. The stock is up 40 cents to $49.03 today and a similar trade surfaced in the January 55 calls, as 4,750-contract block traded for 70 cents per contract on the International Securities Exchange. An investor bought the calls, to open, according to data from ISE. 5000 Jan 55 calls now traded in ETP today. Two days of increased call activity comes ahead of earnings, due out around May 7.

Bearish Flow
The largest options trade of the day is in the SPDR Utility Fund (XLU). The exchange-traded fund, which holds all of the utility companies from the S&P 500, is up 4 cents to $40.95 and notching new record highs after rallying almost 18 percent year-to-date. An investor with a big portfolio of utility names might be looking to hedge, or protect, recent gains in the sector. A whopping 50,000-contract block of June 40 puts trades on XLU today for 51 cents per contract. An investor bought the puts, according to a source on the exchange floor, and appears to be opening a new position.

Jive Software (JIVE) drops 22 cents to $13.64 and options volume on the Palo Alto, CA business software developer is running 3X the daily average. 2,540 puts and 30 calls traded on the stock so far. The flow is heavily concentrated in the May 12.5 puts, as it appears that buyers were paying 39 cents per contract and then 45 cents, to open new positions Thursday morning. 2,525 contracts traded against 207 in open interest. The increased activity comes ahead of an April 30 earnings report.

Unusual Volume
Microsoft (NASDAQ:MSFT) options volume is running 2.5X the (22-day) average, with 427,000 contracts traded and call volume accounting for 68 percent of the volume.

Qualcomm (NASDAQ:QCOM) options volume is 2.5X, the average daily, with 93,000 contracts traded and call option volume representing 94 percent of the activity.

Zynga (ZNGA) options volume is running 2X the average daily, with 62,000 contracts traded and call volume accounting 65 percent of the activity.

Increasing options activity is also being seen in Talisman Energy (NYSE:TLM), Safeway (NYSE:SWY), and Akamai (NASDAQ:AKAM).

Implied Volatility Mover
Implied volatility in options on Weyerhaeuser (NYSE:WY) is moving higher ahead of earnings. The stock is up 6 cents to $31.47 and options volume on the paper company is running 2.5X the daily average. 5,590 puts and 650 calls traded in WY so far. May 30 puts are the most active, as 4,935 contracts have traded against 3,302 in open interest. Some investors are possibly taking protective put positions ahead of the results, and 30-day implied volatility in the options on the stock is up 12 percent to 27.5.

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