Thursday's Options Recap

Sentiment

The major averages moved higher early Thursday following gains in equity markets across Asia and steady trading in Europe. Stock index futures also held steady through economic data, which showed economic growth slumping 6.3 percent during the fourth quarter of 2008 and weekly jobless claims up to 652,000 in the week ended March 21. The numbers didn't deviate too far from expectations and, as a result, the Dow Jones Industrial Average moved higher when the exchanges opened for trading in New York.

Stocks traded quietly throughout the morning session and into midday. A rally surfaced later following a successful auction of Treasury notes. Stocks slumped late Wednesday following poor results from an auction of 5-year notes. Thursday's showing seemed to ease some concerns about dwindling demand for Treasurys ahead of looming supply.

Consequently, with bonds heading higher late Thursday, stocks are holding on to gains as well and the industrial average is up 105 points heading into the final 45 minutes of trading. The CBOE Volatility Index (.VIX) made a midday run back towards the 40 "psych" level and was recently down 1.37 to 40.88. Approximately 6.3 million calls and 5.5 million puts have traded across the options exchanges thus far.

Bullish Flow

Potash (POT) is up $5 to $88.52, not far from session highs, and April calls with strike prices ranging from 80 to 120 are seeing active trading on talk BH Billiton (BHP) might buy POT. Globe and Mail writes that Australian newspapers are speculating that BHP might spend some of the $6.3 billion recently raised in bond sales to make a bid for Potash.

Ciena (CIEN) is up 82 cents to $8.27 and options volume is running at 3X the average daily levels amid increasing interest in April 7.5 and 10 call options. 6,456 April 10 calls and 100 percent hit ask-side of the bid-ask spread. The top trade is 5000 at the offer for a dime on the ISE, where sentiment data confirm the trade is an opening customer buy order.

Sprint (S) is up 10 cents to $3.80 and more than 13.1K April 4 calls traded. Looks like investors are paying 25 cents and, with existing open interest of 7,133 and 95 percent of the volume hitting ask-side of the bid-ask spread, it looks like buyers are dominating the action. ISE Sentiment data confirms that customers are opening new positions.

Bearish Flow

iShares Mexico Fund (EWW) puts are actively traded. Shares are up 56 cents to $28.53 and 17.7K June calls at the $35 strike traded. The in-the-money puts have existing open interest of 174 and ISE Sentiment data (at 99 percent) suggest that customers are buying to open new positions. The defensive trading is perhaps in reaction to escalating violence south of the border and or worries that it might soon "mushroom" out of control.

American Electric Power (AEP) is down 63 cents to $26.49 and April 30 puts are active. With 4,510 traded and 100 percent hitting ask-side of the bid-ask spread, it looks like buyers are dominating the order flow. Top trade is 1,136 at the offer for $3.30 on ISE. Open interest is 408 and ISE Sentiment data confirms that customers are opening new put positions in the Ohio-based electric utility. Four blocks of AEP shares, totaling 265K also traded today. Implied volatility is 42.8 (+1.4).

Implied Volatility Movers

General Motors (GM) is up 16.4 percent to session highs of $3.48 and implied volatility is falling after the Wall Street Journal reported that the automaker is likely to get more government aid. President Obama's one-month old Auto Task Force is prepared to recommend more loans for GM and Chrysler, as the government doesn't want to see them slip into bankruptcy protection. Implied volatility in General Motors options is down to 184, down from 208 yesterday and 269 on March 5.

Implied volatility is also lower in Best Buy (BBY), Red Hat (RHT), and Conagra (CAG). Meanwhile, implied volatility is higher in MEMC Electronics (WFR), BofA (BAC), and Elan (ELN).

Comments

[rayman:]

I like these pair trades as well for quick intraday profit.
Was going to get HGG (H.H. Gregg off of BBY news, missed it)........or SYY (Sysco) off of CAG news. Too many other positions to manage today though, but missed out on the HGG short squeeze today.
Bah humbug, but Happy investing, Ray

Mar 26 04:30 PM