Thursday Options Recap

by: Frederic Ruffy


Stock market averages are lower late-Thursday following a round of disappointing earnings news. Cisco Systems (NASDAQ:CSCO) is down 14.3 percent and easily the biggest loser in the Dow Jones Industrial Average after the networking giant reported earnings that topped expectations, but then guided estimates lower for the subsequent quarter. Akamai (NASDAQ:AKAM), Pepsico (NYSE:PEP), and ActivisionBlizzard (NASDAQ:ATVI) are also seeing post-earnings weakness. On the economic front, the news was a bit brighter and included news of a 36,000 drop in weekly jobless claims for the period ended February 5. Economists were looking for a decline of 9,000. However, after an eight-day winning streak, the Dow Jones Industrial Average is being weighed down by Cisco and sixteen other components. The Dow is down 25 points and the tech-heavy NASDAQ has lost 2.2. The CBOE Volatility Index (.VIX) edged up .29 to 16.16. Trading in the options market is busy, with 9.2 million calls and 6.2 million puts traded so far.

Bullish Flow

Dish Networks (NASDAQ:DISH) adds $1.19 to $23.37 after Credit Suisse said AT&T (NYSE:T) might bid for the company. According to a Bloomberg story today, CS analysts think that AT&T could be interested in Dish’s wireless spectrum assets because customers are increasingly demanding video and broadband from the same provider. DISH hit a high of 24 early and the top options trades surfaced not long ago after Mar 24 – 25 call spread was apparently bought at 35 cents, 1000X on PHLX. The spread is a bullish play through March (36 days) and offers a potential 65-cent pay-off (excluding commissions) if shares settle above $25, or 7 percent above current levels. Feb 25, Mar 21 and Mar 24 calls are seeing interest as well. 7,450 calls and 1,075 puts now traded in the name, or 4X the recent average daily volume.

Petrohawk (NYSE:HK) loses two pennies to $20 and 13 cents per contract is paid for a block of 18,000 Jun 30 calls. Looks like an opening trade. 20,301 traded, compared to 31 contracts in open interest. Shares of the Houston-based oil and gas company have performed well lately, up 36 percent since 9/22, but have not traded north of $30 since September 2008. Next earnings due late-April.

Bearish Flow

After a volatile day of trading, including a new-52 week high of $360 early, Apple Computer (NASDAQ:AAPL) is trading down $4.50 to $353.66 late-Thursday. Shares drifted lower in morning trading amid reports of modest crowds at the Verizon iPhone launch. The selling pressure intensified midday, until shares touched a low of $348 on heavy volume. AAPL has since rebounded and the overall options order flow seems to reflect mixed sentiment. 322,000 calls and 264,000 puts traded. The top trades are in the weeklys that expire 2/11 and kinda look like a lottery ticket, as one strategist paid 13 cents for the 320 - 330 - 340 put fly, 1000X. This spread offers a $9.87 pay-out (excluding transaction costs) if shares settle at $330, or 6.7 percent below current levels, at the weekly expiration tomorrow. Meanwhile, Apple implied volatility is up 4.5 percent to 23.

Implied Volatility Mover

Investors are sizing up Sequenom (NASDAQ:SQNM) early Thursday, as shares add 94 cents to $7.65 after the company released results from a ‘locked assay’ study for non-invasive pre-natal diagnosis of fetal Down Syndrome. Results were published in the American Journal of Obstetrics and Gynecology. Shares are up on the news and the early options action includes a block of 2,950 Mar 8 calls at 22 cents when the market was 22 to 30 cents. Looks like an opening call writer taking advantage of today’s strength to sell the contract, which is 35 cents out-of-the-money. 3,200 traded. The next biggest trade is 1,050 Feb 7 calls at 45 cents and might be liquidating of a position in in-the-money calls. 1,415 traded. Implied volatility has eased 4 percent to 52.