Thursday Options Recap

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 |  Includes: BBBY, C, COST, LB, REE, WMT, YHOO
by: Frederic Ruffy

Sentiment

Stock market averages fell Thursday morning after another big quake north of Tokyo, but the knee-jerk reaction was short-lived and trading is orderly heading into the final hour. Economic data was in focus before the opening bell after the Labor Department reported that weekly jobless claims declined by 10,000 to 382,000 in the period ended April 2. Economists had predicted a decline of 6,000. Meanwhile, Bed, Bath and Beyond (NASDAQ:BBBY) helped the NASDAQ 100 in early action after the retailer reported better-than-expected earnings late-Wednesday. Costco (NASDAQ:COST) was the second best gainer in the NASDAQ 100 after the reporting strong March same store sales numbers. JC Penney (NYSE:JCP), The Limited (LTD) and Macy’s (NYSE:M) were among the other retail winners. However, while stocks opened on solid footing, a round of selling interest surfaced mid-morning after another large quake rattled Japan and triggered tsunami warnings. The Dow Jones Industrial Average traded down more than 100 points from session highs. The situation had stabilized by midday and the Dow is now down 45 points. The tech-heavy NASDAQ lost 6 points. The CBOE Volatility Index (.VIX) rallied to 17.77 and is now up .34 to 17.24. Trading in the options market is not very active, with 6.7 million calls and 5.8 million puts traded.

Bullish Flow

Citigroup (NYSE:C) April 4.5 calls are the most actively traded options contract for a second day. 141,829 traded yesterday and open interest increased by 5380 contracts to 757,265. Today, shares have added 7 cents to $4.66 and 87,340 more have changed hands. 36 percent traded on the bid and 59 percent at the ask, as there seems to be a mix of opening and closing activity happening in the contract. The April 4.5 call is now 16 cents in-the-money and has fewer than 7 trading days of life remaining. Citi will report earnings on April 18. which is after the April expiration. A 10-for-1 reverse stock split happens on May 6. There’s been a lot of interest in Citigroup options ahead of these events. Today, for example, the five most actively traded equity options are the Citi April 4.5 calls, June 4, puts, May 5 calls, May 4.5 calls and April 4.5 puts.

Bearish Flow

Wal-Mart (NYSE:WMT) loses 7 cents to $52.91 and is one of 29 Dow stocks heading lower Thursday morning. Meanwhile, in options action, a noteworthy trade is a May 52.5 – 55 strangle, bought at $1.30, 8000X. The position was tied to 192K shares at $53.05 and appear to be an opening play — a bet that shares of the world’s largest retailer will see increasing volatility over the next 43 days. WMT, which stopped reporting monthly same store sales numbers, fell 3.1 percent on 2/22 after earnings were reported and fell another 4 percent in the weeks that followed. However, the stock is up 3.1 percent since March 17.

Yahoo (NASDAQ:YHOO) loses 9 cents to $16.96 and one investor sells 10,000 April 17 calls to buy 20,000 April 16 puts, collecting 14 cents on the bearish (1X2) risk-reversal. The position was tied to 700K shares at $16.94. It comes after a 5.9 percent gain in shares since March 17 and possibly closes a bullish position. Or, it might be a bearish play ahead of next week’s expiration. No news on the stock today. Yahoo is due to report results after market 4/19, which is the Tuesday after the April contracts come off the board.

Implied volatility Mover

Rare Element Resources (NYSEMKT:REE) is leading the sector to higher ground Thursday on reports the US might respond to China's recently announced plans to stockpile rare earth materials by initiating a stockpiling of its own. REE is up 16.2 percent to $15.27 and heading to session highs. Options action is brisk, with 23,000 calls and 11,000 puts traded in Rare Element so far. Most of the action has been smaller lots. The top trade is an April 12.5 - 14 put spread, apparently bought at 60 cents, 500X. April 14 and 15 calls are the most actives, with 3520 and 4800 traded, respectively. Investors seem to be taking positions in the front-month April options and anticipating additional action in REE tomorrow and the rest of next week before the expiration. Implied volatility is up 7.5 percent to 80. AVL and MCP are seeing relative strength as well. The Market Vectors Rare Earth ETF (NYSEARCA:REMX) is up 2.1 percent.