Thursday Options Recap: Rallying on Mixed News

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Includes: DFS, HOG, XLF
by: Frederic Ruffy

Sentiment

Stocks are rallying following a day of gains in Europe and a round of mixed economic news Thursday. Stock benchmarks across Europe were led higher by a 2 percent gain in France’s CAC 40 Index on diminishing worries about the European Debt Crisis. The euro also rallied, gaining .0101 to 1.2081 against the buck. Gains across the Atlantic helped set a positive tone for morning trading on Wall Street. The domestic news was mixed. The latest weekly jobless claims data showed filings down to 456K last week, from 459K the week before and not as much as the 450K that economists had expected. Separately, it was reported that the US Trade Balance was $40.3 billion in April, up from $40 billion the month before and less than the $41.3 billion deficit expected by economists. Stability in Europe overshadowed the economic news, however, and after falling 41 points Wednesday, the Dow Jones Industrial Average is up 236 points late Thursday. With less than an hour left to trade, the CBOE Volatility Index (VIX) is down 3.06 to 30.66. Option action is picking up a bit. With an hour left to trade, about 6.9 million calls and 5.4 million puts traded so far.

Bullish Flow

Harley Davidson (NYSE:HOG) is up 89 cents to $27.07 and options players are going hogwild for call options on the motorcycle maker, with 20K contracts traded in the first hour. June 28 calls are the most actives, with 5275 traded and some closing trades probably driving some of the flow, as open interest is 8775 and the most of any June options contract. Looks like opening action in Jun and Jul 30 calls. Aug 30 and Jun 26, 27, and 29 calls are also seeing interest. Implied volatility edged up 3.5 percent to 56.5. The increased activity is in reaction to takeover (Briefing) and LBO (Fly on the Wall) chatter.

Discover Financial (NYSE:DFS) shares have been climbing and bullish flow is detected in DFS options, with 3,600 calls traded or 4X the recent average daily. The stock is up 64 cents to $13.21 and Jun 13 calls are the most actives. 2590 traded (61 percent Ask). Another 1690 July 15s changed hands (89 percent Ask). Implied volatiilty is down 7 percent to 52.5, as shares try to battle back from a 22.7 percent slide suffered since mid-April.

Bearish Flow

XLF Select Sector Financials (NYSEARCA:XLF) are up 35 cents to $14.36 and a noteworthy options trade today is a block of 26K July 14 puts bought at 61 cents apiece on AMEX. 65.9K traded and some of the action might be closing. Open interest is 82.1K. However, there's probably some premium buying/hedging going on, possibly related to upcoming regulatory reform in the industry.