Thursday Options Recap

by: Frederic Ruffy


Stocks are broadly lower, as falling crude oil prices, an analyst downgrade of the chip sector, and the options-expiration conspired to kick volatility up a notch. Semiconductor stocks slipped early after BofA/Merrill Lynch downgraded eight semiconductor companies, including Dow component Intel (NASDAQ:INTC). Intel is down 4.2 percent and the biggest loser in the Dow Jones Industrial Average late Thursday. Chevron Texaco (NYSE:CVX) and Exxon Mobile (NYSE:XOM) are also lower after crude oil fell nearly $2 to $77.60 a barrel.

Meanwhile, the day's economic news was mixed. Data released early showed weekly jobless claims holding steady at 505,000 last week, but a report from the Mortgage Banker's Association raised some eyebrows after it showed delinquencies at a record in the third quarter, with prime borrowers showing notable signs of strain. Reports released later showed the list of leading indicators rising a less-than-expected .3 percent in October, but manufacturing in the northeast (Philadelphia Fed Survey) up more than expected.

In the end, the mixed economic news was overshadowed by weakness in tech and energy stocks. Meanwhile, volume and volatility edged up heading into the expiration. With an hour left to trade, the S&P is down 17 points and the CBOE Volatility Index (.VIX) up 1.60 to 23.23. Trading in the options pits is active, with approximately 6 million puts and 6.4 million calls traded so far (a ratio of .94, compared to a 22-day average of .83.)

Bullish Flow

Mastercard (NYSE:MA) is seeing relative strength Thursday morning, up $3.37 to $230.65, and calls are seeing some interest, ahead of a presentation at the Janney Montgomery Scott 2009 Electronic Payments Summit, which is due to begin at 1:30 eastern time. Shares are running higher despite the broad market weakness and investors are showing interest in Nov 230 and Dec 240 calls. About 3400 traded (combined) and two-thirds trading ask-side.

Zumiez (NASDAQ:ZUMZ) is down 10 cents to $11.07 and has now suffered a relentless 32.4 percent slide since October 8. Meanwhile, options volume is running 14X the average daily today, with 1188 calls and 144 puts traded so far. Most of the activity is in the Nov 12.5 calls. 1155 changed hands (vs 636 open interest) and 82 percent hitting ask-side. Looks like call buyers are opening new positions ahead of the Everett, WA apparel store's earnings release, which is due out after the closing bell.

Bearish Flow

Pre-Paid Legal Services (NYSE:PPD) shares spiked down midday and are getting slammed midday on news the co. has received a complaint letter from the FTC related to Identity Theft Shield and Affirmative Defense Response System (ADRS) Program. PPD is down $5.91 to $35.22 and options activity is running 11X average daily on increasing interest in Nov 35, Dec 30 and Dec 35 puts.

Implied Volatility Movers

Implied volatility jumped in China Medical (CMED) after shares fell on disappointing earnings news. CMED is down $2.15 to $13 and options volume is running 8X the usual, with 4900 puts and 1750 calls traded. Implied volatility is rallying to 83, from about 74.6 the day before.

Implied volatility is also higher in Prepaid Legal Services (PPD), King Pharmaceuticals (KG), and Clorox (NYSE:CLX). Meanwhile, implied volatility is falling in (NYSE:CRM).

Unusual Volume Movers

Intel (INTC) is seeing 2X average daily trading volume, with 211,000 contracts traded and call volume representing 64 percent of today's activity.

DELL is seeing 4X average trading volume, with 127,000 contracts traded and call volume representing 65 percent of today's trading activity.

Dryships (NASDAQ:DRYS) is seeing 2X normal trading volume. 99,000 contracts have traded, with calls representing 67 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Etrade (NASDAQ:ETFC), Sears Holdings (NASDAQ:SHLD), and Bristol Myers (NYSE:BMY).