Thursday Options Recap

by: Frederic Ruffy


The major averages are deep in the red, falling under the weight of disappointing economic data Thursday. The stage was set for morning losses after the Labor Department reported that jobless claims increased by 25,000 to 500,000 last week. Economists were looking for a decline of about 12,000. The early decline gathered additional momentum at 10:00 a.m. Eastern time after the Philadelphia Fed Survey of manufacturing activity unexpectedly dropped to –7.7 in August. Economists had predicted a reading of +7.5! The major averages sank on the news and never recovered. With about an hour left to trade, the Dow Jones Industrial Average is down 165 points. The NASDAQ gave up 36. Trading in the options market is active heading into tomorrow’s expiration Friday, with about 6 million calls and 6.4 million puts traded so far.

Bullish Flow

Call activity is picking up in the Ultra Short QQQQ (NYSEARCA:QID) exchange-traded fund ahead of earnings from H-P (NYSE:HPQ), Dell (NASDAQ:DELL), and Marvell Technology (NASDAQ:MRVL), at the close of trading today. QID is designed to move twice the inverse of the Qs (QQQQ) and is up 58 cents to $17.92. QQQQ, in turn, is a fund that holds the top 100 non-financial stocks that trade on the NASDAQ Stock Market. Since it is market-value weighted, large cap technology names dominate the fund. Meanwhile, tech stocks are under pressure along with the broader market on disappointing economic news Thursday. Meanwhile, the top trade in the QID is a buyer of 6,500 Sep 19 calls at 73 cents. 10.4K now traded and these call buyers are making bearish market bets, because QID calls will increase in value if QQQQ falls. Aug 17 and 18 calls are seeing interest as well.

Bearish Flow

Coca Cola (NYSE:KO) lost 60 cents to $55.24 and is one of the Dow stocks trading lower late Thursday. All thirty Dow components are in the red, led by a 3.4 percent loss in GE. In the options market, a noteworthy trade in KO is a block of 12.7K Nov 60 calls on the 30-cent bid. Looks like an opening premium sale and was probably tied to a block of 200K shares at $55.09.

Implied Volatility Mover

CBOE Volatility Index (.VIX) is up 1.40 to 25.99 and running to session highs after data released at 10:00 ET showed the Philly Fed manufacturing index falling to -7.7 in August, down from 5.1 in July and much worse than the 7.5 that economists had predicted. A separate report the List of Leading Indicators up .1 percent in July, and half as much as expected. VIX is rallying on the poor numbers and one player initiates a bullish Sep 25 – 32.5 – 42.5 call fly on the volatility index, paying $1.90, 6500X. The spread was tied to VIX futures on a 15 delta, according to a source on the floor.

Unusual Volume Movers

Bearish activity detected in Newell Rubbermaid (NYSE:NWL), with 4039 puts trading, or 39x the recent avg daily put volume in the name.

Bullish flow detected in Canadian Solar (NASDAQ:CSIQ), with 5753 calls trading, or 4x the recent avg daily call volume in the name.

Bullish flow detected in Red Hat (NYSE:RHT), with 3162 calls trading, or 5x the recent avg daily call volume in the name.

Increasing volume is also being seen in Motorola (MOT), NetApp (NASDAQ:NTAP), and Symantec (NASDAQ:SYMC).