Wednesday's Options Recap

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Includes: APOL, BMY, CELG, CPLA, CSIQ, DDD, DWDP, ESI, F, GM, LDK, MON, MOS, PLD, RGR
by: Frederic Ruffy

Sentiment

Stocks opened lower on poor jobs numbers Wednesday, but then battled back into positive territory midday. The stage was set for early market weakness after ADP said the US economy lost 742,000 jobs in March. Economists were looking for a decline of 633,000 and the weak number packed a lot of punch because it comes two days before Friday's jobs report. Economists expect the Labor Department's report (which includes both private and public sector payrolls) to show a loss of 658,000 jobs in March.

After falling more than 100 points early, the Dow Jones Industrial Average found a floor in morning trading with help from better-than-expected data on manufacturing [PMI], construction spending, and pending home sales. By midday, stocks were again broadly higher. GM (NYSE:GM), the biggest loser in the Dow, is off 7 cents to $1.86, but off session lows ($1.58) after the automaker said March sales fell 45 percent (vs. -48 percent Street estimates) and that auto sales might finally be reaching a bottom.

Outside of GM, four other Dow stocks are lower, 25 higher, and the industrial average is up 87 points heading into the final forty-five minutes of trading. The CBOE Volatility Index (.VIX) slipped 1.36 to 42.78. Approximately 5.8 million calls and 5.1 million puts have traded thus far.

Bullish Flow

LDK Solar (NYSE:LDK) and Canadian Solar (NASDAQ:CSIQ) are seeing bullish order flow. LDK options volume is running 2X the average daily on increasing interest in April 7.5 and 10 calls. Shares are up 41 cents to $6.75 after takeover talk made the rounds today–Briefing. CSIQ is up 82 cents to $6.80 the day after Piper upgraded the stock to Neutral from Sell saying, among other things, $30 bln in Green stimulus from China is under way and a positive catalyst. CSIQ options volume is running 4X the usual. April 7.5 calls are the most actives.

Amylin Pharmaceuticals (AMLN) is up 17 cents to $11.72 and call are active. Natixis upgraded the stock to Buy today. Sentiment in the options market also seems bullish. The top trade of the day is 5900 April 17.5 calls on the PHLX for 20 cents, which is an opening customer buy order. 2500 more traded as I wrote this update, also for 20 cents on the PHLX.

Bearish Flow

Some of the chemical names have come under pressure in recent trade after S&P cut its long-term unsecured ratings on Dow Chemical (DOW) to BBB-1 from BBB. DOW, DuPont (DD), Mosaic (NYSE:MOS), and Monsanto (NYSE:MON) have all sold off in the past 15 min. MON is down $1.40 since then and heading into earnings tomorrow morning. Players are jockeying for position ahead of the news, with active trading seen in MON April 80 puts and April 90 calls.

Capella Education Company (NASDAQ:CPLA) is down $2.3 to $50.7 after rival Apollo Group (NASDAQ:APOL) posted better than expected earnings and revenues, but had cautious things to say about the outlook going forward. APOL is down $11.65 to $66.68 and CPLA is down in sympathy. In the options market, CPLA volume is running at 49X the normal levels, with most of the volume concentrated in April 50 puts. It looks like a mix of buying and selling, with some writers perhaps taking advantage of high volatility to collect $2.60 and $2.70 per contract with 16 days left until expiration.

Implied Volatility Movers

General Motors (GM) implied volatility remains elevated. Shares are down 16 cents to $1.78 after the Obama administration said they favor a gradual bankruptcy of the automaker. Implied volatility in GM options is up modestly and remains at an extreme of more than 330 percent.

Implied volatility is also higher in Celgene (NASDAQ:CELG), ITT Education Services (NYSE:ESI), and Sturm Ruger (NYSE:RGR). Implied volatility is easing in Apollo (APOL), Prologis (NYSE:PLD), and Ford Motor (NYSE:F).

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