Thursday Options Recap

Sentiment

Stocks opened higher on positive earnings from Cisco (CSCO) and a bigger-than-expected decline in weekly jobless claims. Before the opening bell, the Labor Department reported that jobless claims fell by 20,000 to 512,000 last week. Economists were looking for a smaller 8,000 decline. The report takes on added importance this week, as it comes ahead of the Labor Department's monthly jobs data Friday. Economists expect tomorrow's numbers to show the economy losing 175,000 jobs in October. The unemployment rate is expected to improve to 6.5 percent, from 6.6 percent.

Meanwhile, Cisco Systems is helping both the Dow and the NASDAQ. Shares are up 68 cents to $23.97 after the tech bellwether reported earnings that beat Street estimates and the company's CEO also noted that a recovery in the industry is "well underway." CSCO and the other 29 components of the Dow are up and the industrial average has added 200 points heading into the final forty-five minutes of trading. The NASDAQ gained 47.

Meanwhile, the CBOE Volatility Index (.VIX) is down another 2.12 to 25.60 and off more than 5 points on the week. Trading in the options market is running about the typical levels, with 4.8 million puts and 6.2 million calls changing hands so far (a ratio of .77, compared to a 22-day average of .80).

Bullish Flow

The PowerShares DB US Dollar Index Bullish ETF (UUP) is seeing a second day of heavy trading Thursday. Yesterday, more than 400,000 calls traded on the fund. Shares were halted midday Thursday, news pending. The news is: UUP will stop issuing new shares. UUP is up 39 cents to $22.90 and the December 23 calls, which traded 330,000X yesterday, are seeing another 157,000 contracts traded day. Heavy selling is being seen, as some "savvy" players close positions opened yesterday and bank profits following today's move.

Big Prints again in BofA (BAC) Thursday after an investor sold 100K Nov 16 calls at 19 cents and bought 130K Nov 17.5 calls at 4 cents. This might close part of a vertical spread that traded on Oct 28 when a strategist bought the same spread 120000X at 34 cents. Shares were near $15.30 at the time.

Bearish Flow

Sun Micro (JAVA) is down 4 cents to $8.28 and the Nov 8 - Jan 6 put spread trades 15000X. An investor pays an average of 3.5 cents and is possibly rolling a position in long puts from Nov to Jan, and from the 8 to the 6 line. The company is expected to report earnings soon, but the exact date is not yet announced. Meanwhile, the EU is debating Oracle's merger plans with JAVA. The NY Times reports today that the EU risks opening a new era of trans-Atlantic anti-trust tensions if it confronts ORCL. However, letting Oracle off the hook might be a sign of weakness. Consequently, one of the best outcomes for the EU would be for Oracle to cancel the deal.

Implied Volatility Movers

Starbuck's (SBUX) options are actively traded and implied volatility is elevated ahead of earnings, due out after the closing bell. SBUX is up 49 cents to $19.70 and options volume is running 4X the average daily, with 25,000 calls and 23,000 puts traded so far. Implied volatility is moving up to 51.7, from 46.4 late yesterday.

Implied volatility is also higher in PowerShares Dollar Bullish Fund (UUP), Sprint Nextel (S), and ITT Education Services (ESI). Implied volatility is lower in DirecTV (DTV), Cisco (CSCO), and the S&P 500.

Comments

[jayminho:]

sprint is a freak.
can anyone tell me whats going on there ?

Nov 05 06:24 PM

[Aryamehr:]

AT the end of their Q3 they had $868 million in free cash flow, $200 million was assigned to their pension fund, leaving them with $668 million in Free Cash Flow. They also retired over $600 million in debt that was due in 2010. At the end of the quarter they had $5.9 Billion in cash with a credit facility of of $1.6 Billion, giving them a total liquidity of $7.5 B.

Now lets see what happened to their subscriber base, well their Pre Paid division called Boost Mobile once again had impressive net adds; 666,000. This is very impressive when you compare the sum of their net adds to that of other carriers. The combined Pre Paid net adds of PCS, Leap (aka Cricket) and T-Moble was no more than 245,000. What has been hurting Sprint was their lack of a credible line-up of Smart phones, however that has changed. At the end of Q1 2010 Sprint should have a line up of phones that will emulate that of any other Telco. This is when you should begin to see a positive churn. Why would anyone want to leave Sprint when they have the cheapest plans with the best line up? Remember Sprint has twice the 3G coverage of ATT and 14 times that of T-Mobile, not to mention that they are the only Telco with a substantial 4G platform.

What you need to remember is that Sprint's arsenal of phones just six months ago was unimpressive, however in Q1 2010 that disadvantage will change. Sprint's selection of new phones will begin to stop the bleeding and their 4G compatible phones will give it a critical advantage for coming to market first. What you need to do is be patient and add to your positons.

Nov 06 04:11 AM

[BeachRider:]

This ORCL/JAVA work just sends some chills through the JAVA stockholders. What if JAVA burns through a substantial amount of its cash-on-hand to keep the company viable while the EC 'fiddles'.

Ellison could simply go-away and watch MySQL lose a ton more money (and staff). It only costs him $165MM (or so) to do that. He has clearly lost much more than that in lost-value due to the delay in the acquisition.

Don't even get me started on what this has done to SPARC...

Nov 09 03:54 PM