The major averages are mixed in a day of quiet trading Friday and mostly positive economic news. Data released early showed fourth quarter Gross Domestic Product increasing at a respectable 5.6 percent annual rate. While that was a bit less than expected, a separate report showed the University of Michigan Consumer Sentiment Index at 73.6 in late March, up from an initial reading of 72.5 and better than the 73.0 that economists had predicted.
The Dow Jones Industrial Average moved up on the data and, from that point forward, trading was choppy. With an hour left to trade, the Dow is up 8 points, but the tech-heavy NASDAQ lost 7. The CBOE Volatility Index (.VIX) is off .16 to 18.24. Trading in the options market is slowing ahead of the weekend. Approximately 4.9 million puts and 6.6 million calls traded across the eight options exchanges.
Lockheed Martin (LMT) is up 68 cents to $84.21 and April 90 calls are being bought. Almost 13,000 traded so far, including a block of 3,300 at 20 cents on ISE, which is an opening customer buyer, according to ISEE data. Open interest is just 505 contracts and implied volatility edged up about 2 percent to 22. No headlines on the name today and next earnings are expected around April 20, possibly outside of the April expiration. Defense contractors Northrop (NOC) and Raytheon (RTN) are also seeing bullish order flow, perhaps in reaction to the escalating tensions between North and South Korea (see EWY comment below.)
Put volume is picking up in the iShares South Korea Fund (EWY) on reports a South Korean ship has sunk following an explosion along a disputed border with North Korea. EWY is off 35 cents to $48.69 and options volume is 15X the usual, with 97 percent of the volume on the put side of the options chain. The action includes an April 43- 45 put spread at 15 cents, 5000X on AMEX. 11.5K April 45 puts now traded. April puts with strike prices ranging from 43 to 49 are seeing brisk trading. July 44 puts seeing some interest as well.
Caterpillar (CAT) is up 68 cents to $62.82 and recent trades include 38K Aug 55 puts at $2.45 per contract. The block was bought on AMEX and tied to 990K shares at $62.94. Looks like a new position in anticipation of heightened volatility in the months ahead. Shares are up 23.7 percent since February 8 and implied volatility in CAT options has eased from about 43 percent to 32 percent during that time. In stock news, WSJ reported on Mar 24 that CAT will take a $100 million first quarter charge because of health bill. Next earnings expected around April 20.
Implied Volatility Movers
Quicksilver Resources (KWK), the Fort Worth, Tex. oil and gas company, is off 27 cents to $13.41 and options volume is 5X the average daily. The activity is concentrated in the April 13 puts and includes the purchase of 5000 contracts at 45 cents (vs shares at $13.40 on a 37 delta). A total of 9467 traded, compared to 1927 in open interest. Looks like some players bracing for higher volatility in the weeks ahead. Shares are down 14.7 percent since March 17 and implied volatility has moved up from about 46 to 52 during that time, with most of the gains occurring over the past two days. No news on the stock.
Unusual Volume Movers
Electronic Arts (ERTS) options volume is running 9X the usual, with 127,000 contracts traded and call activity representing about 99 percent of the activity.
Brocade (BRCD) options activity is running 3X the usual, with 80,000 contracts traded and call volume representing 68 percent of the volume.
Oracle (ORCL) options volume is running 2X the usual, with 110,000 traded and call volume representing 68 percent of the activity.