Thursday Options Recap

by: Frederic Ruffy


Action is uninspired and market averages are lower again Thursday. Weakness in overseas markets helped set the table for morning losses on Wall Street after Hong Kong's Hang Seng shed 1.3 percent and a 1.8 percent loss in Germany's DAX helped pace a decline across the Eurozone. In the US, the focus was also on economic data after Jobless Claims fell to four year lows of 359K last week, but that was not as good as expectations of 350K. A separate report showed Fourth Quarter GDP at 3 percent annual rate, and in-line with expectations. Meanwhile, crude oil remains under pressure and lost another $2.57 to $102.84 per barrel. Gold is down $2.4 to $1655.5 an ounce. Stock market averages are sporting modest losses as well. While the Dow is down 33 points, the tech-heavy NASDAQ lost 17. With an hour left to trade, CBOE Volatility Index (.VIX) is up .7 to 16.17 and well off session highs of 17.20. Options volume is indicative of the more cautious underlying tone. 6.3 million puts and 6.1 million calls traded across the exchanges so far.

Bullish Flow

Bottom fishers may be snapping up calls in Melco Entertainment (NASDAQ:MPEL) today, as shares trade down nearly 6% at 13.13 in heavy spot volume of 5million shares (50% above normal pace). In midday action, two large sweeps took place, with a buyer paying 30 cents for nearly 4000 April 14 calls and 75 cents for 3200 April 13 calls at the same instant. Call volume is approaching 13,000 contracts, or 6x the normal midday level for the stock. Call volume was also heavy yesterday, with a bullish May 14- 15 call spread trading 3500x to open on the ISE for even money.

Pre-earnings action in MFC Industrial (MIL) is focused on Jan 10 calls. Shares of the Vancouver-based metals and mining company are off 2 cents to $7.80 on volume of only 37,000 shares, which is not too far from typical levels for the name. Meanwhile, a 1475-lot of Jan 10 calls traded for 40 cents and 1475 for 45 cents. The market was 20 to 50 cents at the time. The activity appears opening and might be in anticipation of a post-earnings pop in shares when the company reports tomorrow morning. However, since the focus is on January options, it's possibly more than an earnings play and maybe a bet that shares will extend the 11.3 percent rally seen so far in 2012.

Bearish Flow

Pulte Group (NYSE:PHM) loses 52 cents to $8.96 and a hefty spread is initiated on the stock after 48,400 Apr 8 puts were sold on the homebuilder at 11 cents and 48,400 May 8 puts bought for 34 cents. The spread, for a 23-cent net debit, likely rolls a position opened on 3/12, when 24,000 Apr 8 puts were bought on the stock for 21 cents and 2/27, when 24000 were bought for 41 cents
. Shares are under fire today amid weakness in the sector, but still holding a 1.7 percent month-to-date gain. The position in Apr 8 puts, which have now traded 51000X, is being liquidated at a loss. A new position in May 8 puts, where volume is now 51.4K contracts, is being opened and possibly expressing the view that PHM will give back some of this year's 42.2 percent gain through mid-May.

Implied volatility Mover

Tibco Software (NASDAQ:TIBX) spikes higher on increasing volume of 2.4 million shares and was recently up $1 to $32.03. Trading in the options market is picking up as well. 19,000 calls and 3,300 puts so far. Looks like speculators are taking positions in April 33, 34, 36 and 39 calls on the software maker. Implied volatility has moved up 35 percent to 52, as there might be a leak or analyst commentary related to this afternoon's expected earnings release.