Thursday Options Recap

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 |  Includes: CXW, DANG, HD
by: Frederic Ruffy

Sentiment

Trading is mixed and activity is slowing ahead of the three-day weekend. The tone of trading remained cautious early-Thursday following two days of losses across global equity markets and after the Labor Department said that jobless claims decreased by 6,000 to 357K last week. Economists were looking for a decline of 8,000 and the modest miss comes ahead of key jobs data tomorrow morning. Although financial markets are closed in observance of Good Friday, the Labor Department will release the report tomorrow morning. Meanwhile, crude oil has added $1.71 to $103.18 and gold is also attempting to recapture recent losses as well. The yellow metal is up $17.4 to $1631.50. With forty-five minutes left to traded, the Dow Jones Industrial Average is down another 31 points. However, the tech-heavy NASDAQ gained 7. CBOE Volatility Index (.VIX) ticked .52 higher to 16.96. Trading in the options market is slowing ahead of the break. 5.9 million calls and 5.3 million puts traded so far.

Bullish Flow

Home Depot (NYSE:HD) adds 74 cents to $50.59 and is the best percentage gainer among 8 Dow stocks moving higher Thursday. Shares are now up more than 20 percent year-to-date and moving to multi-year highs. Options order flow on the home improvement retailer was interesting Thursday morning, as a 2330-lot of Apr 52.5 calls was bought on the stock for 10 cents, to open, on ISE. 12,800 now traded across all exchanges and ISEE data confirm that investors are buying new positions in the contract. Apr 52.5 calls on Home Depot are 3.8 percent out-of-the-money and, due to the holiday tomorrow, have 10 trading days of life remaining after today. Buying the contract seems to reflect confidence in the recent trend and that HD will continue to set new highs over the next two weeks. Earnings were last reported on 2/21.

The rally and heavy trading continues in eCommerce Dang Dang (NYSE:DANG). The stock is up another 49 cents to $9.71 on volume of 6 million shares, which is about 3X the typical volume for the stock. Meanwhile, 10,000 calls and 1,500 puts traded on the Beijing-based ecommerce company, which is more than 2X the daily average. Apr 10 calls are 3.1 percent out-of-the-money, expiring in two weeks, and are the most actives. 2,260 traded. Apr 7, Apr 9 and Jun 9 calls are busy as well and implied volatility in DANG options is up 2.5 percent and elevated at 86. There are still no headlines on the stock, but shares are now up nearly 20 percent month-to-date and since the bullish options activity surfaced on March 30.

Bearish Flow

Corrections Corp of America (NYSE:CXW) adds $1.50 to $28.71 and is moving to 52-week highs today after a 13D filing showed Covex Mgmt with a 7 percent stake in the company. An investor might be looking to hedge recent gains in the stock, as a 3600-lot of Jun 25 puts traded on the stock for 35 cents when the market was 20 to 30 cents. Volume is now 4,130. Jun 30 calls are the second most actives, 1660 traded (77 percent Bid). Levels of implied volatility eased 3 percent to 26.

Implied volatility Mover

The biggest prints so far today are in the VIX pit after one strategist sold 60,000 Apr 20 puts on the index for $2.75, sold 60,000 May 26 calls for $1.20, bought 73,000 Jul 25 calls at $3.20 and bought 73,000 Jun 19 puts for $2.10. In other words, an Apr 20 - May 26 strangle was sold on VIX to buy a Jun 19 - July 25 strangle. $1.35 was paid on the four-way and it might roll a position from 2/3 when the Apr 20 - May 26 strangle was bought for $4.45, 60000X. VIX is down 4.9 percent since that time and the position is being liquidated at $3.95. A new position in the Jun 19 - July 25 strangle is opened for $5.30. VIX is up 16.94 and the strangle purchase seems to express the view that the index is likely to make a substantial move higher or lower before over the next two months.