Thursday Options Recap

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 |  Includes: AMX, ANF, C, COST, HRB, JCP, PG
by: Frederic Ruffy

Sentiment

Stocks opened higher and are holding gains late Thursday on better-than-expected weekly jobless claims numbers. After a 275-point rally Wednesday, the Dow Jones Industrial Average extended the advance early after the Labor Department reported a 21,000 drop in jobless claims, which was better than the 15,000 drop that economists had predicted. The retailers were also in focus, with June same store sales helping to lift a number of names in the sector including Costco (NASDAQ:COST), Abercrombie (NYSE:ANF), and JC Penney (NYSE:JCP). Trading had turned mixed into midday, however, and market action has been somewhat choppy Thursday afternoon. With about an hour left to trade, the Dow is up 55 points and the NASDAQ is flat. The CBOE Volatility Index ((.VIX)) is down .05 to 26.79. Trading in the options market seems to reflect some bullish sentiment, with 4.3 million puts and 5.3 million calls have traded across the options exchanges so far.

Bullish Flow

H&R Block (NYSE:HRB) is seeing bullish trading, even as shares gapped lower and fell to 52-week lows on news CEO Russ Smyth has resigned. HRB is off $1.15 to $14.34 and 7,735 Jan 20 calls traded. The action includes a multi-exchange sweep of 2135 contracts at 25 cents each, which is an opening customer buyer, according to ISEE data. Jan 15 and 20 calls are trading at the offer as well. Meanwhile, Jan 14 and 15 puts are trading predominantly on the bid. Looks like some investors view today’s weakness as an opportunity to take bullish positions in HRB Jan options. Shares have now fallen 36.6 percent year-to-date. Implied volatility is up 14.5 percent today, to 39.5.

Procter & Gamble (NYSE:PG) is up $1 to $61.83, one of the best gainers in the Dow, and options volume is 2X the average daily, being led by a buyer of 21,150 Aug 65 calls at 22 cents each. Looks like a new position. Implied volatility is flat at 19.5. Earnings due out early August.

Bearish Flow

America Movil (NYSE:AMX) is up 17 cents to $49.84 and a bearish spread is initiated in the Mexican wireless company after a strategist buys 5100 Aug 49 puts at $1.87 and sells 7650 Aug 45 puts at 65 cents. The spread looks like a new position and possibly a hedge ahead of earnings, expected around 7/20.

Implied Volatility Mover

Citi (NYSE:C) July and August 4 calls are today’s most actively traded equity options contracts, with 103.3K and 48.4K traded, respectively. Shares are up 3 cents to $3.93 and there seems to be some optimism building ahead of next week’s (7/16 before market) earnings release. The stock is now up 4.5 percent month-to-date and Credit Suisse said today that US banks have already recognized 90 percent of the write-downs related to the credit crisis. Reduced leverage makes the group attractive (no conflicts of interest there, right) and the risk from the European Debt Crisis is “overstated.” Indeed, according to Reuters, “When Bank of America, JP Morgan Chase and Citi post their quarterly results next week, investors will focus on delinquencies and loan demand to see if the recent improvement in credit quality will last.” Implied volatility in Citi is edging up 2.5 percent to 42.5 ahead of the results.