Thursday Options Recap

by: Frederic Ruffy


Market action is mixed on a busy news day, but light volume after the Independence Day holiday. Stock market averages fell sharply at the open, despite positive jobs numbers. ADP reported that the US economy added 179,000 private sector jobs last month. The expectation was 105,000. Separately, the Labor Department reported that jobless claims declined by 11,000 to 374,000 in the final week of June, which was better than the 388,000 that was expected. The good news on the jobs front didn’t seem to hold much sway, even with key monthly jobs numbers due out again Friday morning. Stock market averages were in the red at the opening bell. The latest ISM Services Index weighed on trade. It printed to 52.1 in June and below expectations of 53.7. At the same time, retailers were out with their worst June same store sales numbers in three years.

In Europe, stock market averages finished mostly lower after ECB cut rates to record lows and the Bank of England extended its quantitative easing. The news was in line with expectations, and offered no fodder for the eurozone bulls. The euro is down 1.1 percent to 1.239 against the buck. Crude oil is off $0.72 to $86.94 per barrel, and gold gave up $13.80 to end at $1608 an ounce. Bonds found a bid on the poor ISM print and the benchmark 10-year is up 9/32nd, bringing its yield back below 1.6 percent. Volumes are light at about 3.8 million shares. The Dow Jones Industrial Average is down 18 points, but the NASDAQ has added 5. CBOE Volatility Index (.VIX) is up .67 to 17.33. Trading in the options market is active, and also being driven by heavy ex-dividend activity in Verizon and AT&T. 8.7 million calls and 4.4 million puts traded across the exchanges so far.

Bullish Flow

JP Morgan (NYSE:JPM) loses $1.50 to $34.38, and is the biggest loser in the Dow Jones Industrial Average on no stock-specific news Thursday morning. Financials are relatively weak this morning and JPM had been trading sideways in a range around a 50-day moving average over the previous two weeks. Shares came under fire Thursday morning, and the top options trade on the bank is a July 36 - 37 call spread, bought for $0.22, 5000x. The might adjust a position or close, as open interest is sufficient to cover. Or, it's possibly a bet that JPM will recover $37 per share by the expiration, or a 7.6 percent advance over the next 15 days. Earnings come into play the morning of July 13.

Bearish Flow

Rio Tinto (NYSE:RIO) loses $0.47 to $49, and a multi-exchange sweep of 2850 Aug 45 puts trades on the international mining company for $1.30 when the market was $1.20 to $1.30. A customer bought, to open, according to ISEE. 4,515 now traded. A separate sweep of 1084 Aug 42.5 puts traded on RIO for 75 cents and was a firm buyer, to open. 6,400 puts and 400 calls traded on the stock and 30-day ATM vols are moving up 3 percent to 37.5. Bearish trading in RIO comes as shares give back early gains and fall into negative territory.

European stocks had moved higher early after ECB and People's Bank of China cut rates, while Bank of England maintained its QE strategy. The euphoria was short-lived, however. Spain's IBEX paced a decline across eurozone equity markets with a 3 percent loss.

Implied volatility Mover

Apple Computer (NASDAQ:AAPL) is up $12.84 to $612.25 in active trading of more than 11 million shares after The Wall Street Journal reported on a possible MiniPad, or a tablet with a smaller screen than the existing iPads. Shares are rallying and options volume on Apple through midday is more than a half million contracts. 335,000 calls and 214,000 puts so far. 45 percent of the flow, or 245,000 contracts, is in the weekly options that expire after tomorrow. 605, 610 and 615 calls are the most active, as some players seem to be anticipating the momentum to continue through the weekend. Another 38,000 of the weekly 7/13 contracts traded. Therefore, more than half of the total volume in AAPL options today is in weekly contracts. Meanwhile, 30-day ATM implied volatility is options on Apple is up 6.5 percent to 26.5, which places it in the 20th percentile of the 2012 range (46 and 17). The company will report earnings the afternoon of July 24, which is after the July expiration.

Unusual Volume Movers

Bearish activity detected in Suntech Power Holdings Co Ltd. (NYSE:STP) with 5497 puts trading, or 7x the recent average daily put volume in the name.

Bearish activity detected in Canadian Natural Resources Ltd. (NYSE:CNQ) with 2026 puts trading, or 2x the recent average daily put volume in the name.

Bullish flow detected in Archer Daniels Midland Company (NYSE:ADM) with 4327 calls trading, or 2x the recent average daily call volume in the name.

High options volume is being seen in Netflix (NASDAQ:NFLX), Teekay Shipping (NYSE:TK), and Patriot Coal (PCX).

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