Thursday Options Recap: Caution Before the Weekend

by: Frederic Ruffy


Stock market averages opened higher on better-than-expected economic data, but trading has since turned cautious ahead of the three-day weekend and jobs data due out Friday morning. The table was set for morning gains after the Labor Department said weekly jobless claims fell by 6,000 to 439,000 in the week ended March 27, which was slightly better than economist estimates. Separate data showed manufacturing activity, as measured by the ISM Index, up to 59.6 in February, which was up from 56.5 the month before and better than expectations of 57.0.

The Dow Jones Industrial Average rose as much as 99 points on the data. However, with jobs numbers out Friday, and the stock market closed in observance of Good Friday, traders are reluctant to stick their necks out too far. Consequently, the Dow Jones Industrial Average has given back much of its gains and is up 23 points heading into the final hour. The NASDAQ is down 6.8 on disappointing earnings from Research In Motion (RIMM). Trading in the options market is active, but slowing ahead of the weekend. Approximately 4.6 million puts and 5.8 million calls traded so far.

Bullish Flow

Allos Therapeutics (NASDAQ:ALTH) is up 9 cents to $7.52 and one or more traders is positioning for a rally with a bullish July 5 – 10 risk reversal, which has now traded 5000X. One player paid 30 cents (50 cents for calls minus 20 cents for puts), 4000X on CBOE. Looks like a new position and possibly a play on results from Phase 2 trial comparing Folotyn vs. Tarceva in non-small cell lung cancer expected in the second quarter. Implied vols in July is about 76, compared to 63 in April.

Bearish Flow

A-Power Energy (OTC:APWR), which fell 11.1 percent Wednesday after reporting better than expected earnings for the fourth quarter and then aggressively cut its FY2010 revenue forecast, is down another 83 cents to $9.87 Thursday. Options volume is 2X the average daily. 8368 calls and 8509 puts traded. The top two trades, 1000 April 12.5 puts and 946 April 12.5 puts at $2.70 on ISE, are opening customer buyers, according to ISEE data. In fact, 99% of the puts traded on the ISE, or more than 5100 contracts, are opening customer buyers. Implied volatility in the Shenyang, China, electric utility has eased about 3.5 percent, but remains relatively elevated around 57.

Implied Volatility Movers

CBOE Volatility Index (.VIX) hit a low of 16.79, but is up to session highs of 17.59 (unch.), as trading turns more cautious ahead of the three-day weekend. The NASDAQ has fallen into the red with help from disappointing earnings from RIM (RIMM). In addition, significant event risk exists tomorrow. Although the equity market is closed for Good Friday, key monthly jobs data will be released. Plus, the bond market and futures will be open Friday morning and will react to the data. Stocks will have to wait till Monday.

Unusual Volume Movers

Microsoft (NASDAQ:MSFT) options volume is running 2X the usual, with 196,000 contracts traded and call activity representing about 64 percent of the activity.

Research In Motion (RIMM) options activity is running 3X the usual, with 331,000 contracts traded and call volume representing 65 percent of the volume.

US Natural Gas Fund (NYSEARCA:UNG) options volume is running 2X the usual, with 170,000 traded and call volume representing 69 percent of the activity.

Unusual volume is also being seen in Micron Tech (NASDAQ:MU), Transocean (NYSE:RIG), and Mylan Labs (NASDAQ:MYL).