Thursday's Options Recap

by: Frederic Ruffy


Another barrage of selling swept through the equity market and sent stock prices sharply lower Thursday. The day was off to a rocky start after auditors warned that General Motors (NYSE:GM) might not survive as a going concern. While GM skidded, the financials also faltered on news Moody's is reviewing Wells (NYSE:WFC) and BofA (NYSE:BAC) for possible credit rating downgrades. (No, really?). JPM had its outlook lowered. Some pre-employment jitters ahead of Friday's payroll numbers likely affected trading as well.

Thursday's economic numbers were mixed. Data released before the market showed productivity falling at a .4 percent rate in the fourth quarter. Economists had predicted a 1 percent increase. Unit labor costs, meanwhile, jumped 5.7 percent during that time. Economists were expecting a more modest 3.8 percent. Weekly jobless claims were a bit better-than-expected. According to the Labor Department, jobless claims fell by 31,000 to 639,000 in the final week of February. Economists had predicted a decline of 20,000. A final report released 30 minutes into the trading session showed factory falling 1.9 percent in January, which was not nearly as bad as the 3.5 percent decline economists had been expecting.

Yet, mixed economic news wasn't enough to offset the deep fears about the troubles in key industries like the autos and the banks. The Dow Jones Industrial Average is down 225 points and weighed down by 27 of its 30 components. With forty-five minutes left to trade, the CBOE Volatility Index (.VIX) is up 3.27 to 50.83 and session highs ahead of tomorrow's payroll numbers. Approximately 6.4 million puts and 7.2 million calls traded so far.

Bullish Flow

Tivo (NASDAQ:TIVO) has given back most of the gains from the day before, when shares rallied on better-than-expected earnings news. Shares are down 51 cents to $6.71 and options volume is running at twice the typical levels, with 3,363 calls and 14 puts traded. May 7.5 calls are the most actives and almost all of today s 2,500 contracts hit ask-side.

Time Warner (NYSE:TWX) is down 36 cents to $7.13 and 11.5K Jan 2010 calls at the $10 strike traded. The volume includes 5000 contracts bought on the CBOE (mid-market) for 55 cents, according to a source on the floor. Most of the other trades hit offer-side. Looks like buyers, possibly closing existing short calls as the contract already has significant open interest.

Comcast (CMCSK) is down 62 cents to $11.23 and 8,591 April 10 puts traded. The activity includes two blocks of 3,750 (7,500 total) on AMEX for 45 and 50 cents. Looks like an opening put seller.

Bearish Flow

Gamestop (NYSE:GME) is down $3.3 to $24 after the Silicon Valley Insider wrote an article noting that is getting into the video game trade-in biz, which could represent a threat to Gamestop. GME options are actively traded, with increasing volume seen in March puts at the 25, 22.5 and 20 strikes.

Ace Ltd (NYSE:ACE) is down $2.70 to $32.27 and Mar 30 puts have seen interest in recent action. Today's 4,271 contracts include a multi-exchange sweep of 3,612 contracts at the offer for $1.25. Open interest is 1,443, suggesting opening buy.

Implied Volatility Movers

Adobe (NASDAQ:ADBE) implied volatility is easing after the software maker released preliminary first quarter earnings results that topped analyst estimates. Shares rallied 80 cents to $17.12 and total options volume rose to 4 times the normal levels on heavy premium selling. Implied volatility is down to 60 from about 67 the day before.

Implied volatility is also higher in Children's Place (NASDAQ:PLCE), Weight Watchers (NYSE:WTW), and the iShares Long-term Bond Fund (NYSEARCA:TLT). Implied volatility is higher in Las Vegas Sands (NYSE:LVS), General Motors (GM), and Citi (NYSE:C).