Thursday Options Recap

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 |  Includes: APOL, CVX, GS, YHOO
by: Frederic Ruffy

Sentiment

Stocks are trading mixed in choppy market action Thursday. After Wednesday’s 280-point tumble, the Dow Jones Industrial Average bounced a bit higher at the open, but the advance was short-lived. While Chevron (NYSE:CVX) and Exxon (NYSE:XOM) weighed down the Dow on falling crude oil prices, the financial names came under pressure after Moody’s put several large US banks up for ratings review. Goldman Sachs (NYSE:GS) also weighed on the financials after a NY prosecutor subpoenaed the bank related to the financial crisis. Meanwhile, the economic data remains uninspiring. According to the Labor Department, filings for jobless benefits fell by 6,000 to 422,000 last week. Economists were expecting a decline to 413,000. First quarter productivity increased at an annual rate of 1.8 percent and .2 percent more-than-expected. However, factory orders fell by 1.2 percent in April and .2 percent more than expected. Yet, stock market averages are holding steady into the final hour after the euro gained 1 percent on the buck on hopes for a bailout of Greece. Crude oil also battled back and is up 34 cents to $100.63. Gold lost $9.1 to $1,533.2 and the ten year Treasury is also taking a hit after Moody’s said it might cut US credit rating. Still, the Dow Jones Industrial Average is down just 17 points and the NASDAQ is sporting an 8-point gain. CBOE Volatility Index (.VIX) slipped .37 to 17.94. Trading in the options market remains somewhat defensive, with 6.6 million calls and 6.6 million puts traded so far.

Bullish Flow

Yahoo (NASDAQ:YHOO) adds 15 cents to $16 and the Jan 12.5 – 20 risk-reversal trades at 7 cents, 10000X on ISE. Sentiment data indicate that calls were bought-to-open. The bullish combo looks tied to 250K shares at $16. YHOO is up a bit today, but down 15.1 percent from the 52-week highs set less than one month ago. Shares jumped 3.1 percent Tuesday on talk of a possible settlement with Alibaba over the recent transfer of control of an online payment unit. Those gains were lost during Wednesday’s volatile trading session.

Apollo Group (NASDAQ:APOL) is up $5.57 to $47.76 early Thursday amid a rally in the education names (CECO, COCO, STRA, DV) after final rules related to gainful employment rules published last night were less strict than some had feared. In APOL options action, a noteworthy trade this morning was a block of 13,000 Jun 44 calls sold at $4 each. It likely exits a position opened yesterday at 95 cents per contract. Today’s trade was tied to 1.04 million shares at $47.70.

Bearish Flow

Goldman Sachs implied volatility is moving higher in the first hour of trading Thursday morning on reports the investment bank has received a subpoena from the Manhattan prosecutor related to the Levin panel report (Bloomberg). Shares are down $3.62 to $132.55 and options volume so far is 10,000 puts/4,865 calls. Jun 130, Weekly 130 and Weekly 135 puts are the most actives. Some investors seem to be bracing for additional downside in the short-term and implied volatility is up 17 percent to 30.

Implied volatility Mover

After hitting a morning low of 17.39, CBOE Volatility Index (.VIX) has battled back and is up .22 to 18.52. After two hours of trading, the S&P 500 Index (.SPX) has given up early gains and is down 5.62 to 1,308.93. The S&P is falling to session lows and also making a move below its May support lows around 1,312. SPX is at levels last seen on April 19, as yesterday’s poor jobs and manufacturing data has raised anxiety levels ahead of tomorrow’s monthly payroll report. A two-day 3.7 percent slide in crude is weighing on the energy names, the financials are under pressure on talk of a Moody’s credit review of some major banks, and a round of poor results from the automakers Wednesday seem to be having a negative impact on the equity market as well. Consequently, options activity is picking up a bit in the index pits. 180K puts and 80K calls on the S&P 500 so far. Over the past two days, VIX has wiped out last week’s 11.4 percent loss.