Thursday's Options Recap

Sentiment

The S&P 500 Index (.SPX) is down 23.76 to 809.98 and at session lows heading into the final hour of trading Thursday. After a day of quiet trading Wednesday, the Dow Jones Industrial Average opened lower and a wave of selling sent the financials broadly lower early. The Dow had lost more than 200 points during the first hour of trading. The situation stabilized in morning action and trading had turned mixed midday, with the NASDAQ posting modest gains around Noon ET. However, another barrage of selling hit late in the day after crude oil gave up early gains and sank below $34 a barrel. A CNBC report that Goldman Sachs (GS) held an emergency investor meeting Tuesday appeared to affect trading as well. The investment bank promptly denied the report, but the damage had been done.

Meanwhile, a report that showed a surprise uptick in retail sales released Thursday morning had little market impact. According to the Commerce Department, sales increased 1 percent during the first month of 2009. Economists had expected a .8 percent drop. Instead, investors seemed more concerned about the lack of progress being made with respect to the fiscal stimulus bill and the financial rescue package. Shares of the major banks are still reeling, with BofA (BAC), Citi (C), and American Express (AXP) leading the Dow Jones Industrial Average to a 225-point afternoon loss. The CBOE Volatility Index (.VIX) is up 1.81 to 46.34. Approximately 5.4 million calls and 5.2 million puts have traded so far.

Bullish Flow

Geron (GERN) is up 28 cents to $7.62 and 6,100 Feb 7.5 calls traded in the first 30 min. The relative strength in shares and the jump in call activity are possibly in reaction to a CNN.com story (link on web site) that a 42-year old man appears free of HIV after a stem cell transplant. Two other stem cell stocks, Aastrom Biosciences (ASTM) and StemCells (STEMj), are also seeing relative strength.

Bed, Bath and Beyond (BBBY) Mar 25 calls are active, with 11.3K traded, compared to open interest of 8,932. The top trades of the day (4,400 and 2,500 contracts) hit bid-side and appear to be call writes. The rest of the day's trades have been ask-side for 40 and 45 cents, suggesting possible call buying as the stock slips 56 cents to $21.87. BBBY was mentioned as a possible private equity play in a CNNMoney.com story titled "Investors Shop for Good Deals on Stores." (Link on web site.)

Bearish Flow

Cabot Oil and Gas (COG) puts are seeing interest ahead of earnings due out after the closing bell. Today's top trades include 2000 Feb 30/25 put spreads sold for $2.35. The spread is perhaps rolling of a position in Feb 30 puts opened on Feb 9 and down to the 25 strike. COG is down 9.9 percent since Feb 9 and this strategist might be pocketing a profit on the 30s, but looking to maintain a bearish position by owning the Feb 25 puts heading into earnings.

Earthlink (ELNK) is down 26 cents to $6.68 and 3,276 ELNK July 5 puts have traded, including 1,236 at the offer for 35 cents in recent trade. Looks like opening put buy as there is no existing open interest in the contract.

Implied Volatility Movers

Buffalo Wild Wings (BWLD) shares are up $6.88, or 31.4 percent, to $28.79 after the company reported quarterly earnings of 43 cents per share on $121.2 mln in revenues. Analysts were looking for 39 cents on $117.3 mln. The stock heated up and implied volatility came crashing down to 68, from about 82 the day before.

Implied volatility is also lower in Coca Cola (KO), American Italian Pasta (AIPC), and Pepsico (PEP). Meanwhile, implied volatility remains elevated in BofA (BAC), Goldman (GS), and General Electric (GE).

Comments

[mac.barron:]

Shorting ELNK seems like a sound play to me.

Feb 13 03:11 AM