Hot Option Plays: S&Ps Extend Climb After Hours

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Cusick’s Corner 05-06-2013 After Hours
Stocks finished mixed on a relatively slow news day Monday. With no economic data or earnings of broad market significance to guide the action, trading opened steady after overseas markets saw a day of mostly range-bound and uneventful action. Crude oil erased midday losses to add 22 cents to $95.82. Gold gained $5 to $1469. On Wall Street, Bank of America (NYSE:BAC) rallied 5 percent and was the leader in the Dow Jones Industrial Average on news of a settlement with MBIA (NYSE:MBI). However, the Dow finished down 5 points. The NASDAQ was up 14.3 points.

Bullish
Caterpillar (NYSE:CAT) gained 72 cents to $87.68 and is one of 14 components of the Dow thirty holding gains heading into the closing bell Monday after the latest issue of Barron’s profiled a positive view on the maker of earth-moving equipment. CAT has now rallied 9 percent since earnings were reported on Apr 22. On the options front, 52,000 calls and 17,000 puts traded on the stock. The top, or largest, trade is a buyer of 15,000 May 80 calls on CAT for 50 cents per contract. Open interest at that strike is 13,469 and so the position appears opening. If so, it’s a short-term trade, as May options expire at the end of next week. June 87.5, Weekly 87.5, and June 90 calls on CAT are also seeing interest today.

Bullish trading was also seen in Tibco Software (NASDAQ:TIBX), NRG, and ActivisionBlizzard (NASDAQ:ATVI).

Bearish
Exxon Mobile (NYSE:XOM) is up 61 cents to $90.63 and is also among the 14 Dow Jones Industrial Average stocks holding gains late-Monday. An investor in the options market seems to be looking for the stock to fall in the months ahead, as an October 75 – 85 put spread is bought on XOM for $1.35, 20000X, to open. That is, the investor bought 20,000 October 85 puts on the stock for $1.91 and sold 20,000 October 75 puts at 56 cents. Since volume exceeds open interest in both contracts, the spread appears to be a new position. If so, a large shareholder might have bought it as a type of short-term protective position or hedge, as the max payout from the spread happens if shares fall to $75 or less through the October expiration.

Bearish trading was also seen in Virgin Media (NASDAQ:VMED), CBOE Holdings (CBOE), and Mens Warehouse (NYSE:MW).

Index Trading
Overall volumes were very light Monday, including in the index market. About 662,000 calls and 575,000 puts have traded on the S&P 500 Index (.SPX), CBOE Volatility Index (.VIX), and other cash indexes, which is less than 80 percent the normal volume, according to Trade Alert data. The S&P 500 traded in a narrow 5.5-point range and is up 3.08 points to 1,617.50, new record highs. 380,000 calls and 391,000 puts traded on the S&P. May 1585 and 1575 puts were the most actives. Meanwhile, VIX, which tracks the expected or implied volatility priced into S&P 500 options, dropped another .17 to 12.68. 224,000 calls and 135,000 puts traded in the VIX pit. June 20 calls and May 14 puts were the most actives.

ETF Action
SPDR Technology Fund (XLK) was up 15 cents to $31.36 and options volume on the ETF was 3X the daily average Monday. About 57,000 calls and 7,000 puts traded on XLK. The top two trades were part of a spread, in which the investor sold 10,000 May 31 calls on the fund at 49 cents per contract and bought 15,000 June 32 calls for 27 cents each. The spread is possibly a roll. That is, the investor held a position in May 31 calls, which are now 36 cents in-the-money and expiring at the end of next week. They’re liquidating that position, while opening a new large block of calls at the June 32 line, which is out-of-the-money. If so, the position adjustment seems to be expressing confidence that the recent advance in the tech sector can continue in the weeks ahead. XLK is an exchange-traded fund that holds all of the technology companies from the S&P 500 and is up 8.6 percent year-to-date.

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