Thursday's Options Recap

Sentiment

The major averages are near session highs heading into the final hour of trading Thursday. Banks led the market early after WellsFargo (WFC) surprised the Street with news of record profits in the first quarter (say what???). The bank said it earned 55 cents per share for the quarter, and more than double analyst estimates of 23 cents. The news triggered a volatile move higher in some of the battered banking names, including Dow components BofA (BAC), Citi (C), and JPM.

Benign economic data seemed to help as well. Data released before the start of trading in New York showed weekly jobless claims falling by 20,000 to 654,000 in the latest period. Economists had predicted a decline to 660,000. Separate data showed the trade balance shrinking to $26 billion in February, from $36.2 billion the month before.

However, most of the day's other news was overshadowed by the rally in the financials. The Select Sector Financials (XLF) is up 15.5 percent to $10.53 per share. The Dow Jones Industrial Average is up 246 points with help from 26 of its thirty components. The CBOE Volatility Index (.VIX) fell 1.58 to 37.27 heading into the three-day weekend. Approximately 8.1 million calls and 6.1 million puts traded across the options exchanges.

Bullish Flow

Shanda Interactive (SNDA) calls are active for a second day, as shares of the Chinese media company move to new record highs. April 45 and Sept 50 calls saw increasing open interest following active trading Wednesday. Today, SNDA is up $1.08 to $46.15 and 3,440 May 50 calls traded–93 percent hitting ask-side. No news on the stock. Susquehanna downgraded SNDA to Neutral from Positive today.

Take Two (TTWO) is up 15 cents to $8.13 and hit a high of $8.57 after unsubstantiated takeover chatter made the rounds Thursday morning. Options volume is running at 8X the average daily levels, with 5,500 calls and only 100 puts traded. Some speculative buyers appear to be taking positions in April 10 calls on hopes the rally might continue before the contracts expire at the end of next week. Some premium sellers are focused on May 10 calls.

Bearish Flow

Direxion 3X Bear Fund (FAZ) is down $4.47 to $13.37, falling to new session lows and new record lows. The fund, which is designed to move 3X (300 percent) the inverse of the Russell 1000 Financial Services Index, is getting clocked after better-than-expected earnings from Wells Fargo sent banks higher Thursday. 25K FAZ calls traded, compared to 7,400 puts. Looks like heavy selling in April out-of-the-money calls, as players scramble to salvage remaining time value. Implied volatility is down to 179 from about 195 late yesterday.

The Dow Jones Real Estate ETF (IYR) is up $2.17 to $29.40 and the top options trade of the day is 10K Jun 22 puts for $1.20. It was part of a put spread. A strategist bought 10000 Jun 29 puts and sold the Jun 22s. An average of $2.475 was paid on AMEX and the spread appears to be a new position, as volume exceeds open interest in both contracts. The spread was tied to IYR shares @ $29.14. IYR implied volatility is down to 71.5, from about 75 yesterday, and to its lowest levels since mid-Feb.

Implied Volatility Movers

Pulte Homes (PHM) is up 32 cents to $9.96 and implied volatility is falling the day after the co. announced plans to acquire Centex (CTX). May 10 puts are the most actives and the volume includes a block of 9,700 hitting on the bid for 85 cents. Looks like a put seller, perhaps expecting the stock to hold above $10 through the May expiration (36 days). Implied volatility in PHM options is falling below 80, down from about 84 yesterday, and to its lowest levels since September 2008.

Implied volatility is also lower in Wells Fargo (WFC), BofA (BAC), and Costco (COST). Meanwhile, implied volatility is higher in Raymond James Financial (RJF), Textron (TXT), and Take Two Interactive (TTWO).