Thursday Options Recap

by: Frederic Ruffy


The major averages are under water, as poor economic data, uncertainty surrounding the reappointment of Fed Chairman Ben Bernanke, and credit worries in Europe conspired to raise anxiety levels on Wall Street Thursday. The day was off to a slow start after the Labor Department reported that weekly jobless claims fell by a less-than-expected 8,000 to 470,000 in the period ended January 23. Economists were expecting a larger drop — to 470,000. Separate data showed durable goods increasing just .3 percent in December, which was much less than the 2 percent jump economists had predicted.

The focus is also on the Senate where members are voting to decide whether or not Fed Chairman Ben Bernanke will stay for a second term. Meanwhile, anxiety levels are rising in Europe after S&P warned about UK's banking system and spreads widened in Greece's credit markets.

The Dow Jones Industrial Average is down 92 points heading into the final forty minutes of trading. The NASDAQ lost 35. The CBOE Volatility Index (.VIX) hit a morning high of 25.30 and was recently up .24 to 23.38. Trading in the options market is active, with approximately 6.1 million puts and 7.3 million calls traded (a ratio of .85, compared to a 22-day average of .74.)

Bullish Flow

Qualcomm (NASDAQ:QCOM), which is down 14.8 percent to $40.22 and the biggest loser in the NASDAQ 100 on disappointing earnings news Thursday, was the subject of a couple of interesting trades Wednesday afternoon. One player paid $1.32 for the April 40 - 45 - 50 call spread, 10000X on AMEX. Another apparently collected 19 cents on the Apr 35 - 45 bullish risk reversal on ISE; which might be a closing trade after today's big drop, but possibly a bullish play since the stock price is almost exactly midway between the two strikes. In short, it looks like some investors are positioning for a rebound in the chipmaker.

Bearish Flow

After hitting a high of $43.39 early, National Oilwell Varco (NYSE:NOV) came under pressure in morning trading and was recently down $1.36 to $41.56. In the options market, bearish flow was detected, with 11,420 puts traded, or about 6X the recent average daily. Feb puts with strike prices ranging from 40 to 45 are seeing the bulk of the flow and implied volatility is up about 3.8 percent to 42. No news on the oil driller today and the action might reflect some anxiety about the company's Feb 3 earnings release.

Implied Volatility Movers

Toyota Motors (NYSE:TM), which gapped lower on news it was halting sales of some of its most popular vehicles due to a defect that causes unintentional acceleration, is down another $2.33 to $77.44 today. Reuters and New York Times reports Toyota is expanding its recall to include millions of vehicles in Europe and Asia. TM has now suffered a 5-day 14.3 percent slide and options activity is picking up as well. 9,430 puts and 4,530 calls traded so far, or about 7X the average daily. Feb 75 puts and 80 calls are the most actives, as investors take positions in anticipation of Toyota's next move. Implied volatility is making a run towards 34, up about 1 percent today and up from about 26.5 before the 5-day slide began.

Unusual Volume Movers

Microsoft (NASDAQ:MSFT) is seeing 3X average daily trading volume, with 360,000 contracts traded and call volume representing about 68 percent of today's activity.

Freeport McMoran (NYSE:FCX) is seeing 2X average trading volume, with 153,000 contracts traded and calls representing 74 percent of today's trading activity.

Qualcomm (QCOM) is seeing 7X normal trading volume. 406,000 contracts traded, with call options representing about 66 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Procter & Gamble (NYSE:PG), Nokia (NYSE:NOK), and the iShares Real Estate Fund (NYSEARCA:IYR).

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