Thursday Options Recap

 |  Includes: AMB, CAT, GNK, NFLX, PG, PLD, T
by: Frederic Ruffy


Stocks are holding gains in a day of relatively slow trading Thursday. Stocks struggled at the open after the Labor Department reported that weekly jobless claims jumped by 51,000 to 454,000 in the period ended January 22. Economists were looking for an increase of only 7,000. Separate data showed Durable Orders down 2.5 percent in December. The rocket scientists had that all wrong too. They were looking for an increase of 1.5 percent. The latest Pending Home Sales was a bright spot, improving 2 percent in November. Economists were looking for a decline of .5 percent. The market didn’t really react to the data and the focus seems to be primarily on earnings. While Procter & Gamble (NYSE:PG) and AT&T (NYSE:T) are weighing on the Dow with post-earnings losses, Caterpillar (NYSE:CAT) is up on better-than-expected results and one of 19 Dow stocks heading higher into the final half hour. The industrial average is up 8 points. The NASDAQ is extending this week’s four-day winning streak with an 18-point gain. The CBOE Volatility Index (.VIX) slipped .26 to 16.38. Options volume is a bit lighter than normal, as another massive winter storm pounds the Northeast coast. 7.3 million calls and 6.7 million puts traded so far.

Bullish Flow

Prologis (NYSE:PLD) shares are up $1 to $15.70 on reports it is in merger talks with AMB Property (NYSE:AMB) — Reuters. Shares moved higher in pre-market action and touched a 52-week high of $16.52 in morning trading. A noteworthy options play in PLD is a Mar 14 – 16 risk reversal, 6800X. Looks like 30 cents was collected to sell calls, buy puts, against a block of 680K shares at $15.83. Looks like a new collar position on the Denver-based industrial real estate company.

Basically, in this strategy, the strategist is selling calls, buying puts against shares. The options combination (calls sold for 60 cents and puts bought for 30 cents) reduces the cost of owning shares. In this case, the stock was bought at $15.83 and the combo sold at 30 cents. So, the cost of the stock is $15.53 with upside to $16, or 3 percent, through the March expiration. The downside is limited by the $14 put. This is an institutional play where the investor probably sees a high probability of the stock holding above these levels due to the merger talks.

Bearish Flow

Options volume stats are interesting through midday, as 4.2 million puts and 4.1 million calls have traded so far. Higher volume in puts, relative to calls, strays from the recent pattern. The increase appears to be driven by action in the exchange-traded funds, where 1.8 million puts and 900K calls have traded. 179K calls and 441K puts across the index market and 2 million puts and 3 million calls across the equities.

Genco Shipping (NYSE:GNK) puts are busy, as the slide in the share price continues for another day. GNK touched a new 52-week low and is down 42 cents to $11.84 after Wells Fargo downgraded the stock to Market Perform. Shares are now down 22.9 percent since January 6 and took a hit on Tuesday after Deutsche Bank downgraded the stock to Hold from Buy. Meanwhile, today’s options action includes 13,000 puts and 1,000 calls. March $10 puts are the most actives, with some buyers apparently paying 25 cents to open new positions. Feb 9, April 9 and April 10 puts are seeing interest as well. Implied volatility is up about 5 percent to 50. Earnings are expected mid-to-late February

Implied Volatility Mover

Netflix (NASDAQ:NFLX) touches a new 52-week high and is up $27 to $210.03 after the company reported a quarterly profit of 87 cents per share, which beat Street estimates by 16 cents. Netflix also raised guidance for the current quarter and said in its conference call that it will roll out a Facebook integration this year. Shares are up and the Weekly (1/28) 210 calls, 215 calls, 200 puts and 205 puts are the most actives. Trading is heavy. 144K puts and 132K calls traded in Netflix, mostly in smaller sizes. The top trade is a block of 1000 Feb 160 puts at the 37-cent ask price on CBOE. The next biggest trade: Mar 180 - 200 put spread, apparently bought at $6.35, 711X on ISE. Meanwhile, implied volatility is down 31 percent to 42, compared to a 52-week high and low of 75 and 31.