Thursday's Options Recap

Sentiment

Early trading was a bit wobbly Thursday morning after European equity markets fell into the red and Japan's Nikkei skidded 2.2 percent before the start of trading in New York. However, S&P index futures came off their worst levels after a report released before the opening bell showed retail sales, excluding autos, increasing by .7 percent last month. Economists had predicted a .1 percent drop. By mid-morning trading, investors had shrugged off concerns about weakness in overseas markets and the major averages were broadly higher by midday.

General Motors (GM) is leading the Dow Jones Industrial Average higher late Thursday. GM is up 16.5 percent after the automaker said it didn't need government help to get through the month of March. Financials are showing relative strength as well, with big gains in BofA (BAC) and JP Morgan (JPM) giving the Dow a late-day boost. General Electric (GE) helped. Shares are up 14 percent after S&P lowered GE's credit rating to AA+, which was widely expected and perhaps not as drastic as some investors feared. Only one Dow stock is lower -- Microsoft (MSFT) --and the industrial average is up 215 points heading into the final forty-five minutes of trading.

In the options market, risk perceptions are falling and trading is leaning on the bullish side. After falling more than 6 points during the previous two trading sessions, the CBOE Volatility Index (.VIX) is down another 2.46 to 41.15. Approximately 8.2 million calls and 5.2 million puts have traded so far.

Bullish Flow

iShares Biotech Fund (IBB) came under pressure yesterday on concerns over legislation that could potentially hurt companies in the sector. IBB fell 3.4 percent in midday action. Today, however, biotech stocks are seeing relative strength after Roche finalized its bid for Genentech (DNA) and Gilead (GILD) said it was buying CV Therapeutics (CVTX). The exchange-traded fund made up all Wednesday's losses and more. IBB is up $3.10, or 5.2 percent, to $63.33 and trading is brisk in IBB April and June calls at the $70 strike.

US Airways (LCC) is down 16 cents to $2.43 early in the session and the Apr/Mar 2.5 call spread trades 5100X. It looks like it was bought for 37 cents, perhaps part of a time spread or a roll from March to April ahead of next week's expiration. Similar activity was seen in AMR (AMR), Delta Airlines (DAL), Continental Airlines (CAL), and UAL Corp. (UAUA).

Bearish Flow

AK Steel (AKS) is down 52 cents to $6.02 and June 5 puts are seeing increasing interest. 2,635 traded and 95 percent hit ask-side. Looks like opening put buyers taking positions after AKS and a number of other steelmakers sold off this morning. Steel Dynamics (STLD) issued downside earnings guidance and JP Morgan analysts made cautious comments about carbon steel producers. The firm is joining the "stress test" bandwagon, saying it is creating a model to identify names in the steel sector at risk of violating debt covenants.

Data Domain (DDUP) puts are active as the stock displays relative weakness Thursday. Shares are down 32 cents to $12.98 and 9,171 puts traded, 11X (1100 percent) the normal levels. April 12.5 puts are the most active. 5,800 traded and 68 percent traded ask-side. Similarly, ISE Sentiment is consistent with 60 percent opening customer put buys. Implied volatility is up to 68.4 from about 65.7 yesterday.

Implied Volatility Movers

Fuel Systems Solutions (FSYS) is down 72 cents to $11.13 and hit a 52-week low of $9.90 earlier today. There doesn't seem to be any specific news to explain the drop in the share price, but puts are also active. 3,200 traded, compared to 600 calls. Implied volatility is up to 126, from about 112 the day before.

Implied volatility is also higher in Potash (POT), General Motors (GM), and US Steel (X). Meanwhile, implied volatility is lower in GE, BofA (BAC), and PNC Financial (PNC).

Comments

[rayman:]

An easy way also to buy biotech is to buy the Biotech index calls, ticker .BTK. Popular names such as what is in IBB.
(disclaimer, own calls, up a wee bit today)

Mar 12 05:37 PM