Thursday Options Recap

Sentiment

Stocks were trading mixed early Thursday, as investors digested another hefty dose of earnings news. 57 components of the S&P 500, or 11 percent of the index, were due to report results today. A number of Dow stocks, including McDonald's (MCD), 3M (MMM), and Travelers (TRV), moved higher on better-than-expected earnings, which gave the Dow Jones Industrial Average a modest lift in early trading. However, the NASDAQ opened lower on the heels of a disappointing fourth quarter earnings outlook from eBay (EBAY).

Stocks traded mixed through midday, but then a late day push higher drove both the Dow and the NASDAQ to their best levels of the day by around 15:00 eastern time. There doesn't seem to be a specific catalyst for the late day strength. Travelers shares are up 7 percent and leading the industrial average to session highs. 24 other Dow stocks are higher, 5 lower, and the industrial average is up 130 points.

Meanwhile, the CBOE Volatility Index (.VIX), which hit a high of 22.77 Thursday morning, is down 1.64 to 20.58 and falling to session lows. Volume in the options market is running about the typical levels. With forty-five minutes left to trade, 5.5 million puts and 6.7 million calls traded so far (a ratio of .82, compared to a 22-day average of .80).

Bullish Flow

Cephalon (CEPH) is up $1.86 to $55.13 and options volume is running 4X the usual after TEVA filed to market a generic version of NUVIGIL (armodafinil) Tablets. According to Collins Stewart analysts, the filing was expected and it removes an overhang on CEPH because the timing of the filing was uncertain. CEPH is now likely to file a lawsuit within a 45-day window of opportunity. Some options traders seem to view this as good news as well. The top trade in CEPH is a lot of 12.4K Dec 60 calls for $1.17 on ISE, which is an opening customer buyer, according to sentiment data. 21K CEPH options traded total and 94% of the activity is on the call side of the options chain. Implied volatility (average) is up to 34.3, from about 32.6 yesterday.

A massive buyer of SPDR Homebuilders Trust (XHB) November 16 calls surfaced ahead of existing home sales data Friday. Shares are up 44 cents to $15.22 and one player bought an impressive 100K Nov 16 calls for an average of 30 cents per contract. 117,000 now traded.

Bearish Flow

Bearish activity detected in Leggett & Platt (LEG) with 2014 puts trading, or 84x the recent avg daily put volume. Shares are down 11 cents to $19.15 and the focus is on Mar 17.5 puts. Top trade is 304 contracts ask-side for $1.25 on PHLX. 2000 now traded. The Carthage, MO home furnishings company is due to report earnings today after the closing bell. Implied volatility (average) is up to 35.7, from about 32.5 late Wednesday.

Implied Volatility Movers

Human Genome Sciences (HGSI) implied volatility is elevated amid heavy activity Thursday. Shares are up 6.2 percent to $20.27 and 55,000 calls traded. The interest in HGSI has implied volatility moving up to 183.5, from about 178.5 late Wednesday.

Implied volatility is also higher in Nektar Therapeutics (NKTR), Insulet (PODD), and DR Horton (DHI). Meanwhile, implied volatility is lower in Clorox (CLX), Amgen (AMGN), and EBAY.