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Sentiment

Stock market averages are holding gains, but are well off their best levels late Tuesday. The table was set for early strength on Wall Street after weaker-than-expected economic data in China fueled hopes Chinese monetary officials might soon loosen monetary policy to spur growth in the economy. In the U.S., the only economic stat showed the New York Empire State Index up to a better-than-expected 13.5 in January, from 8.2 last month and better than the 10.0 that was expected. A .5% gain in the EUR/USD currency pair after a successful auction of Spanish debt is helping sentiment as well. The earnings news was mixed, however, after Citi (C) shares took a 7% post-earning hit. Wells Fargo (WFC) is seeing modest post-earnings strength and a number of other financial names – Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC) – are on tap with earnings in the days ahead. Trading has turned a bit more cautious ahead of the results and a flood of other fourth quarter reports due out later this week. With 30 minutes left to trade, the Dow Jones Industrial Average was up 60 points, but 91 points off its best levels. The tech-heavy Nasdaq gained 14 points. CBOE Volatility Index (.VIX) was up 1.26 to 22.17. Trading in the options market was active today, with 11 million calls and 6 million puts traded across the exchanges so far.

Bullish Flow

72,000 calls and 15,000 puts traded on Barrick Gold (ABX). Shares are down 18 cents to $48.16 and possibly falling in sympathy with Newmont Mining (NEM), which lost 3.3% after lowering its outlook for production for 2012. Gold is up $30 to $1,661 an ounce. In options action, January 30 and July 33 calls are the most actives in ABX. A noteworthy spread also traded in the January 2014s after one player paid $3.05 for a 45 – 60 – 75 call fly, 5,000X. The position seems to be targeting a move toward $60 (24.3%) through the 2014 expiration.

Occidental Petroleum (OXY) adds $1.88 to $99.50 and one player apparently sells 15,000 Jan 60 calls on the stock at $39.80 per contract to buy 15,000 May 60 calls for about $40.31 per contract. Looks like a roll and part of a longer-term bullish play on the stock. One year ago, on Jan 14, 2011, a Jan11 – Jan12 60 call spread was bought on the stock for $1.20, 17,000X. Shares are up 2.7% since that time and the position in deep in-the-money calls is now being rolled out an additional five months.

Bearish Flow

Carnival Cruise (CCL) shares are sinking today and implied volatility in the options on the stock is moving higher in the wake of the Italian cruise ship disaster off the coast of Tuscany. CCL is down $4.73 to $29.55 and morning trades on the stock include a multi-exchange sweep of 2,650 Jun 30 puts at $2.60 when the market was $2.60 to $2.70. Data from one exchange is hinting at opening sellers. Feb 30 calls on the stock were actively traded early and seem to include a mix of action. 3,332 traded (53% Ask) and the flow includes a sweep of 757 contracts at the $1.20 asking price, to open. However, the top trades in CCL are a Jan 27 – 32 put spread, sold at $2.30, 10,000X and tied to 820K shares at $29.65, which is possibly a closing trade from mid-Nov after the volatile move in the stock and ahead of this week’s expiration. Still, implied volatility in CCL has rallied 47.5% to 41, as investors now worry about the impact to the industry from the stricken Italian cruise liner. RCL sees higher options volume today as well. (Looks like the original spread was bought on 11/14 for about $1.23. It was a 1X2.)

Implied Volatility Mover

Sears Holdings (SHLD) is up $3.16 to $36.72 after an analyst appeared on CNBC and mentioned the potential for the retailer to go private. Options volume is running 3X the daily average, with 44,000 calls and 16,000 puts traded in Sears so far. The top trades look like a Jan13 45 – 55 call spread bought for $3, 10,000X to open. The position seems somewhat ambitious since the 45s are 22.5% out-of-the-money. However, the stock fetched more than $45 as recently as 12/23, the trading day before shares tumbled 27.2% on disappointing sales guidance. Today’s 2013 call spread trader is possibly looking for the stock to recapture that loss, and a bit more, in 2012. Meanwhile, implied volatility in SHLD continues to move higher - up 9% to 110 and new 52-week highs.

Unusual Volume Movers

Bearish activity detected in Quicksilver Resources (KWK), with 5,165 puts trading, or 24x the recent average daily put volume in the name.

Bullish flow detected in CME Group (CME), with 3,350 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Range Resources (RRC), with 9,056 calls trading, or 3x the recent average daily call volume in the name.

Unusually high options volume is also being seen in U.S. Natural Gas Fund (UNG), VALE and Chesapeake (CHK).

Source: Tuesday Options Recap