Wednesday Options Recap

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 |  Includes: AA, AMAT, CROX, HIG, JACK, NSM, WFC, XLV, XRT
by: Frederic Ruffy

Sentiment

The major averages opened higher Wednesday after the Labor Department reported that the Producer Price Index [PPI], a gauge of inflation at the wholesale level, rose .1 percent last month, which was in-line with economist estimates. Stripping out food and energy, the core PPI fell .6 percent and three times more than expected.

The news came one day after the Federal Reserve concluded a meeting on monetary policy and pledged to keep rates low for the foreseeable future. The tame inflation data helped reassure investors that rates are indeed going to stay low.

Beyond that, there hasn't been a lot of news to guide the market action and the Dow Jones Industrial Average is holding a 50 point gain in the final hour. The NASDAQ is up 11.8. The CBOE Volatility Index (.VIX) dipped another .81 to 16.88. Trading in the options market is picking up ahead of the "Quadruple Witch" expiration, with about 9.3 million calls and 6.4 million puts traded so far.

Bullish Flow

Alcoa (NYSE:AA) shares rallied nearly 7 percent to $14.75 and are easily the best gainers in the Dow Jones Industrial Average on reports the company might begin to get discounts on power supplies in Italy. Alcoa said in November that it would temporarily idle smelters in Sardinia and Venice. However, under a new decree Sardinia and Sicily would be upgrade and industrial consumers like Alcoa would get discounts on power supplies. AA is up and options volume is running 4X the average daily, with 171K contracts on the tape so far. April 15 calls are the most actives. The top trade is a block of 8000 on the bid of 47 cents and marked "tied", and so a possible buy-write. Also seeing buyers of Oct 15 and 20 calls. A seller of an April 15 - 17 call spread, 2000X. A buyer of July - Oct 15 call spread, 4000X. And, an April 13 - 15 "collar", 2800X.

Crocs (NASDAQ:CROX) is up 52 cents to $7.91 and seeing relative strength after Piper Jaffray analysts upped their price target to $9 from $8.50. The analysts met with management and said they have increased confidence in growth strategies, leadership, and opportunities in global markets for the company. They recommend CROX. In the options market, volume is running about the typical levels, but with clearly more action on the call side of the options chain. 1475 contracts traded, compared to 66 puts. The action is focused on Mar 7, April 8, Mar 8 and Sep 8 calls, with about 75 percent trading at the asking price.

Bearish Flow

Wells Fargo (NYSE:WFC) is up 12 cents to $30.40 and a block of 28K April 23 puts traded at 8 cents when the bid-ask was 6 to 8 cents. Open interest is 18.6K and so this looks like a new position. It comes one day after WFC was the subject of bullish call activity in the April 32s. The bank announced job cuts today. It also said it has signed into a second-lien modification component of the Home Affordable Modification Program, which offers struggling home owners a way to lower payments.

Implied Volatility Movers

Jack in the Box (NASDAQ:JACK) gapped higher and is up $1.27 to $24.39 after Goldman Sachs upgraded the stock to Buy from Neutral. In the options market, trading is brisk, with 5240 calls and 77 puts traded by 2:00 ET. The top trade of the day is a lot of 514 April 25 calls at the 60 cent Ask price. 3530 now traded (72 percent Ask) vs. 450 in open interest. Sep 25 calls are seeing interest as well and implied volatility is JACKed up about 6 percent to 28. The company is also presenting at a JP Morgan Gaming, Lodging, Restaurant, Leisure conference today (Noon ET.)

Unusual Volume Movers

S&P 500 Index (.SPX) is seeing 2X average daily trading volume, with 1.7 million contracts traded and put volume representing about 61 percent of today's activity.

Select Sector Healthcare Fund (NYSEARCA:XLV) is seeing 14X average trading volume, with 111,000 contracts traded and calls representing 85 percent of today's trading activity.

Select Sector Retail ETF (NYSEARCA:XRT) is seeing 2X normal trading volume. 82,000 contracts traded, with put options representing about 73 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in National Semi (NSM), Hartford (NYSE:HIG), and Applied Materials (NASDAQ:AMAT).