Thursday Options Recap

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 |  Includes: AAPL, BBY, C, CAG, EBIX, MU, RHT
by: Frederic Ruffy

Sentiment

Stocks are broadly higher with help from earnings news Thursday. The economic data was mixed. Data released pre-market showed orders for Durable Goods falling by .9 percent in February, which was a surprise because economists were looking for an increase of 1.1 percent. However, Weekly Jobless Claims fell by 5,000 to 382,000 in the period ended March 19. Economists were expecting 384,000. Meanwhile, positive earnings news from Micron (NASDAQ:MU), Red Hat (NYSE:RHT), and Conagra (NYSE:CAG) also seemed to help offset the poor Durable Goods print. Fear about the earnings impact from Japan nuke crisis, the European Debt problems, and escalating military conflict in Libya seem to be fading into distant memory. The CBOE Volatility Index (.VIX) is off 1.26 to 17.91 and moving lower for a sixth consecutive day. The market’s “fear gauge” is now 42.6 percent below the multi-month highs seen a little more than one week ago. The Dow Jones Industrial Average is up 97 points and the tech-heavy NASDAQ has added 41.7. Options volume is picking up as well. 8.6 million calls and 7.1 million puts traded so far.

Bullish Flow

Citi (NYSE:C) April 4.5 calls are today’s most actives, with volume now approaching 200,000 contracts before midday. The top trade is a 15,325-contract block at 8 cents when the market was 7 to 8 cents. Almost 80 percent of the volume has traded at the ask. Shares are up today, but have been grinding lower since the stock hit a 52-week high of $5.15 on January 14. On Monday, the bank announced plans for a 1-for-10 reverse split that will take place on May 6. Earnings are slated for April 18 and the Monday after the April options come off the board. Today’s interest in the April 4.5 calls seems to reflect some expectations for a rebound in the stock before that time. May 4.5 calls are also busy. With volume of 61,000, it is today’s third most actively traded options contract.

Apple Computer (NASDAQ:AAPL) adds 59 cents to $339.78 and, morning trading, an investor paid a dime for the Weekly (3/25) 350 – 355 call spread, 6500X on AMEX. Open interest is sufficient to cover, but this might be a new position in anticipation of a rally in Apple shares before the weekend. The breakeven at expiration is $350.10 and 3 percent above current levels.

Bearish Flow

Ebix, Inc. (NASDAQ:EBIX) is getting slammed in afternoon trading Thursday. Shares notched a new 52-week high of $30.35 early, but saw a violent move lower shortly after midday and are down $7.82 to $21.90. The volatility in the stock seems to be stemming from three-part article on Seeking Alpha that noted, among other things, "Investors should view EBIX's stated financials with extreme skepticism given the myriad accounting and oversight issues." Shares are reeling and options volume is 12000 calls and 23000 puts. April and May 20 puts are the most actives, followed by April 25 and 30 calls. There seems to be a lot of jockeying around for the stock's next move. Implied volatility in the Atlanta-based business software company surged to 75 points to 115 percent.

Implied Volatility Mover

Best Buy (NYSE:BBY) rallied to a high of $32.98 this morning, but is now down 90 cents to $30.95 and heading to session lows. The electronics retailer reported a 12-cent quarterly profit before the open. However, the stock came under pressure during the post-earning conference call after the company said first quarter comps will be similar to fourth quarter. Meanwhile, the top options trade of the day is a 7000-contract block of April 30 puts at 35 cents when the market was 37 to 42 cents. It was tied to 168K shares at $31.72 and is possibly a closing trade. Timing was not so good, as the market is now 58 to 61 cents. Open interest in the April 30 puts increased by 21,163 this morning and, at 25,130 contracts, is now the largest position in the name. More than 15,000 traded. The second biggest trade in BBY today is a 4,882-contract block of April 34 calls at 13 cents on ISE, which is an opening buyer, according to ISEE data. The market is now 10 to 12 cents. Meanwhile, implied volatility in BBY is down 25 percent to 30.5 now that the earnings-event risk has passed.