Thursday Options Recap

by: Frederic Ruffy

Gains across the Eurozone set the table for morning strength on Wall Street and stock market averages are holding near session highs in the final hour. Reports from Greece suggesting that the highly anticipated Private Sector Involvement [PSI] program is getting solid participation from creditors seems to be easing some of the recent anxiety about the unfolding debt crisis. Germany’s DAX and France’s CAC 40 Index both gained 2.5 percent Thursday. The euro is holding a .9 percent gain and now fetches 1.3265 against the buck. Crude oil added 84 cents to $107 per jug and gold gained $20 to $1704 an ounce.

The domestic economic news was light today and included jobless claims, which ticked 7,000 higher to 362K. Economists were expecting claims to hold steady at 355K. The data seemed to have little market impact, even as monthly jobs numbers loom for Friday morning. Instead, the focus is on events in Europe and, although final PSI numbers aren’t released until Friday, there seems to be some optimism building ahead of the results. The Dow Jones Industrial Average is up 96 points at session highs. The tech-heavy NASDAQ gained 39 points. With forty-five minutes left to trade, CBOE Volatility Index (.VIX) is down 1.28 to 17.79 and probing session lows. Trading in the options market is running about the typical levels, with 6.5 million calls and 5.7 million puts traded across the exchanges so far.

Bullish Flow

Electronic Arts (NASDAQ:EA) sees an afternoon spike and is trading up 87 cents to $17.36 during a presentation at a Wedbush conference. Maybe something positive was said because share volume is a brisk 13.5 million, or more than double the typical volume. Similarly, 30,000 calls and 4,130 puts traded on the video-game maker. The activity has been in smaller lots. The top trade is a well-timed Mar 17 - 18 call spread this morning for 13 cents on ISE, which was opened when the stock was trading at $16.40 and 5.9 percent below current levels. The spread has been active today and the market is now 22 to 27 cents.

American Eagle (NYSE:AEO) adds 19 cents to $15.73 and has rallied 7.5 percent since earnings were reported yesterday morning. In options action Thursday, one investor bought 37,000 Jan 17 calls on the apparel retailer for $1.54 per contract. The hefty premium purchase is tied to 1.76 million shares at $15.64 and probably closes out a position opened in early-December when Jan 17 calls were being sold on the stock at $1.2 and $1.25, to open.. The stock is up 7.1 percent since that time and today’s call buyer is likely exiting the position rather than run the risk of seeing the stock continue its recent ascent in the months ahead.

Bearish Flow

Carbo Ceramics (NYSE:CRR), a Houston, TX oil services and equipment company, is off 70 cents to $97.58 and it looks like Jun 85 – 95 put spreads are being bought on the stock for $5.30, 2000X on PHLX, to open. The weakness in the stock and increased put activity comes after a four-day 10.6 percent winning streak in shares. CRR was the subject of a bullish Forbes article on 3/6, suggesting that the stock was oversold after a 42 percent plunge since mid-November. But today’s spread trader doesn’t seem convinced that the bottom is in.

Implied Volatility Mover

Dendreon (NASDAQ:DNDN) is down and implied volatility in the options on the Seattle, Wash. biotech is up today after J&J’s Zytiga showed effectiveness in wider use as prostate cancer drug. Concerns about competition to DNDN’s Provenge sent the stock to a morning low of $9.05 per share. The stock is now off 69 cents to $10.18 amid active trading of 30,000 calls and 36,000 puts. Apr 9 puts are the most actives and some investors might view today’s volatility as an opportunity to write puts on the stock, as 82 percent traded on the bid. Mar 9 puts, April 8 puts, and April 10 calls on Dendreon are heavily traded as well and levels of implied volatility moved up 25 percent to 83. The stock sank 20.5 percent on 2/27 after earnings results showed disappointing sales of Provenge. It is down another 13.7 percent since that time. However, Benzinga is reporting that J.P. Morgan and Leerink Swan are out defending the stock today (unconfirmed), which might explain why the stock is 12.8 percent off session lows.

Unusual Volume Movers

Bullish flow detected in Inergy (NRGY), with 2038 calls trading, or 6x the recent average daily call volume in the name.

Bullish flow detected in Medivation (NASDAQ:MDVN), with 3266 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Fifth Third Bancorp (NASDAQ:FITB), with 6497 calls trading, or 2x the recent average daily call volume in the name.

Meanwhile, high options volume is being seen in Green Mountain Coffee Roasters (NASDAQ:GMCR), DR Horton (NYSE:DHI), and McDonald’s (NYSE:MCD).