Thursday Options Recap

Sentiment

Trading remains choppy and the major averages are modestly lower late-Thursday. Stock index futures moved higher early, as better-than-expected earnings from Apple Computer (AAPL), Ebay (EBAY), ConocoPhillips (COP), Fifth Third (FITB), and handful of others helped lift sentiment before the exchanges opened for trading in New York. The Dow Jones Industrial Average opened with modest gains.

The early advance stalled, however, after a report on existing home sales showed a bigger-than-expected drop in March. The data, released 30 minutes into the trading session, showed home sales falling to an annualized rate of 4.57 million in March, down from 4.71 million the month before and below economics expectations of 4.65 million.

Since that time, there has been a lot of back-and-forth action, but not much movement one way or the other. The Dow Jones Industrial Average has traded in a narrow 142-point range and is down 5 points heading into the final 45 minutes of trading. Investors await earnings from Amazon.com (AMZN) and Microsoft (MSFT) after the bell. Durable goods and home sales data are due out tomorrow. The highly-anticipated results from the banking industry "stress tests" will be in focus Friday as well.

In the options market, the CBOE Volatility Index (.VIX) edged down .43 to 37.67 and volume is light, with approximately 6 million calls and 5.3 million puts traded so far.

Bullish Flow

Some investors are hungry for Burger King (BKC) calls midday Thursday. Shares are up 74 cents to $18.74 and total options volume is running 4X the average daily. Most of the activity is in June 17.5 and June 20 calls, with 4100 contracts traded and about 95 percent hitting ask-side. Looks like some investors are buying to open. The bullish trading comes after McDonald's (MCD) and Yum Brands (YUM) posted better than expected earnings this week, and ahead of BK's earnings on April 29.

Palm (PALM) is down 33 cents to $10.03 and options are actively traded on talk the company could debut its new Pre phone with a $150 price tag within weeks. Analysts expect the subsidized price for Palm Pre to be around $199, but it could be as low as $150 if Sprint decides to sweeten the offer. In the options, PALM volume is running 3X the usual, with May 10 calls leading the order flow. 8,100 traded. Meanwhile, it looks like sellers dominating the action in May 10 puts.

Bearish Flow

Semiconductor equipment makers Xilinx (XLNX) and Altera (ALTR) are seeing increasing put volume Thursday. XLNX hit a high around $22 after reporting better-than-expected earnings late Wednesday. Co. reported 26 cents per share, and 8 cents better than Street estimates. Shares have come under pressure midday, however, and were recently down $1.60 to $19.22. In the options, volume is running 3X the usual, with 16,000 puts and 5,200 calls traded. Altera is seeing similar action. Shares are down 92 cents to $15.83. 10000 ALTR puts and 2500 calls traded.

UPS (UPS) is seeing increasing put volume for a 2nd time in less than a week. A large buyer of May 55 puts surfaced on April 17. Today, shares are down $1.85 to $52.90 after UPS delivered a disappointing earnings report. Co posted 52 cents per share, four cents below estimates, and guided second quarter numbers to between 45 and 55 cents, well below the 65-cent consensus. In the options, volume is running 2X the usual. The top trade: 4,165 May 50 puts for $1.25 on the ISE, an opening customer put buyer. 18.5K contracts now traded.

Implied Volatility Movers

Ebay (EBAY) is up $1.37 to $16.15 and implied volatility is falling after the company reported quarterly earnings of 39 cents per share, which topped Street estimates by a nickel. Implied volatility is back down to 45, from about 55 the day before.

Implied volatility is also lower in Apple Computer (AAPL), Fifth Third (FITB), and ConocoPhillips (COP). Meanwhile, implied volatility is higher in Altera (ALTR), US Steel (X), and Allergan (AGN).

Comments

[rayman:]

any thoughts on the .VIX options Fred? It seems like it's stabalized now and I'm thinking strangles being put on farther out?

Apr 23 06:49 PM