Thursday Options Recap

by: Frederic Ruffy


Stocks are trading mixed following a busy day of economic news. Equity markets moved broadly higher across Asia and Europe Thursday, which helped set a positive tone for morning action on Wall Street. Employment data was also in focus after data showed weekly jobless claims falling a better-than-expected 10,000 to 453,000 in the period ended May 22. Economists were looking for a drop of only 5,000. However, ADP reported that the US economy added 55,000 private sector jobs in May, which was less than the 60,000 increase that economists had predicted. The Labor Department releases its key monthly jobs report tomorrow.

The major averages opened modestly higher on the mixed data, but then slipped in morning trading on disappointing ISM Services Index and Factory Orders. ISM was unchanged at 55.4 in May. Economists were looking for an increase to 55.7. Meanwhile, factory orders rose just 1.2 percent April, and below the 1.7 percent increase that economists had predicted. The Dow slipped on the news and then fell to session lows after the euro came under fire, falling to 1.2180 against the buck. Yet, the decline was orderly and now trading is mixed heading into the final hour. The Dow Jones Industrial Average is down 5 points, but the Nasdaq added 15. The CBOE Volatility Index slipped .48 to 29.69.

Bullish Flow

Synaptics (NASDAQ:SYNA) sees a morning spike to $30.45 on renewed takeover chatter — Briefing. However, shares have given back the gains and are now down 22 cents to $28.98. In the options, call volume is running 15X typical for midday. 6,350 contracts traded (1048 puts), including 3336 Jun 31s. 68 percent trading at the ask and implied vols up 8 percent to 44. June 28, 29, 30 and 32 calls are seeing interest as well. SYNA was also subject of takeover chatter on April 6. Shares are down 90 cents since that time.

Avanir Pharmaceuticals (NASDAQ:AVNR) is up 11 cents to $2.63 and options volume is 18X the average daily after a strategist sells-to-open 2500 July 2.5 puts at 26 cents each. 3000 now traded vs. 0 in open interest. Implied volatility in this biotech is in the triple digits, as investors await a decision on its lead Zenvia treatment near the end of 2010. Today’s put writers appear to be making the statement that they are willing buyers of AVNR at $2.50 should shares dip below that level before the July expiration.

Bearish Flow

Tellabs (NASDAQ:TLAB) is off 17 cents to $7.89 and options volume is running 24X the average daily, driven by a buyer of 30,000 July 7 puts at 30 cents each. Two blocks of shares totaling 2.75 million also changed hands today, which seems to indicate the trade was part of a “protective put”, which has the same risk graph as a straight call buy. So, this might be more of a volatility play rather than a straight bearish bet.

Implied Volatility Movers

Ford Motor (NYSE:F), which gained 3.9 percent yesterday after reporting a 22-percent increase in May auto sales, is up another 22 cents to $12.07 early Thursday. In the options market, a noteworthy four way trade involved the purchase of 14K July 11 puts at 33 cents. The strategist also sold 7500 Jun 11 puts at 14 cents, 6500 Jun 12 puts at 39 cents, and 85K shares at $12.01. The overall action looks like a position adjustment, or closing out June to open a similar defensive or bearish position in July 11 puts. Implied volatililty in Ford is down 8 percent to 44 today, and now well below the late May highs around 66.

Unusual Volume Movers

Chesapeake (NYSE:CHK) is seeing 3X average daily volume, with 102,000 contracts traded and call volume representing 52 percent of the action.

American Capital (NASDAQ:ACAS) with 7X the average daily volume. 51,000 contracts traded and calls account for 93 percent of the action.

US Natural Gas Fund (NYSEARCA:UNG) is seeing 3X average daily volume, with 175,000 contracts traded and calls representing 75 percent of the volume.

Unusual volume is also being seen in Petrohawk (NYSE:HK), Joy Global (JOYG), and Applied Materials (NASDAQ:AMAT).