Thursday Options Recap

|
Includes: KLAC, MA, MDLZ, NVLS-OLD, TER, V, XLNX
by: Frederic Ruffy

Sentiment

Stocks are broadly lower Thursday. Economic data was in focus early after the Labor Department reported that weekly jobless claims increased by 43,000 in the final week of April. What! Economists said claims would fall by 31,000. A separate report showed first quarter productivity up a better-than-expected 1.6 percent (vs. 1 percent consensus). The claims data overshadowed the productivity report, as the big miss comes ahead of key monthly jobs data Friday morning. Meanwhile, a mini-crash in the commodities markets is raising some eyebrows. Crude oil plummeted $10.90 to $98.34 on concerns about the economy and amid a 1.6 percent pop in the dollar index. The buck, in turn, is benefiting from expectations for intervention to slow the yen and on dovish comments from ECB President Trichet. Diminished expectations for an ECB rate hike in June has the euro reeling for a 2.1 percent loss against the greenback. Silver lost 10 percent and gold gave up 3 percent. Suffice to say, there’s some volatility in global financial markets today. With thirty minutes left to trade, the Dow Jones Industrial Average is down 183 points and sinking to session lows. The tech-heavy NASDAQ, which had moved to positive territory midday, is now down 16 points. CBOE Volatility Index (.VIX) gained 1.76 to 18.84. Trading in the options market is active, with 9.7 million calls and 9.1 million puts traded so far.

Bullish Flow

KLA Tencor (NASDAQ:KLAC) calls are active amid relative strength in the chip equipment stocks today. KLAC is up 95 cents to $44.78 per share. 6,300 calls and 1,330 puts have traded in the name. The top trade is a 428-contract lot of June 46 calls at the $1.65 ask price. 1,050 traded. June 47 calls are the next most actives. 932 have changed hands. Sep 43 and 55 calls are seeing interest as well. No news on the stock today. Novellus (NASDAQ:NVLS-OLD) is higher after the company announced plans for a $525 million offering of notes, which it will use to buy back shares. Teradyne (NYSE:TER) and Xilinx (NASDAQ:XLNX), two other names in the same space, have also been the subject of bullish trading today.

Visa (NYSE:V) is down $1.09 to $78.68 ahead of earnings, due after the closing bell. The credit card company is due to release results after the closing bell. Options volume includes 12,000 calls and 2,065 puts. The top trade of the day is a 1,800-contract block of Jun 80 calls at the $2.21 asking price. 2,729 traded (70 percent ask). Beyond that, a lot of the volume seems driven by call writers. May 82.5s are the most actives. 3,062 traded (87 percent bid). Similar action is being seen in the May 80 calls. Implied volatility is up 4 percent to 27.5. MasterCard (NYSE:MA) released its results Tuesday. Shares moved up 2.6 percent on the news, but have been trading lower in the two days since.

Bearish Flow

Kraft Foods (KFT) is down 35 cents to $33.50 and 28,000 options have traded ahead of the company’s earnings, which are due out after the closing bell. Most of the action has been on the put side of the options chain. 25,000 traded. In addition, the action is heavily concentrated in the June 29 and 32 puts. One investor bought 7,760 June 32 puts at an average of 26.5 cents and sold 4,400 June 29 puts at 5.5 cents. Both contracts have now traded more than 10K and appears to be opening activity. Some investors seem to be bracing for a move in Kraft shares below $32, but not beyond $29, through the June expiration. Shareholders looking to hedge positions might be initiating the trades.

Implied volatility Mover

GM shares are down 82 cents to $32.22 after the auto-maker reported earnings and revenues that topped analyst estimates. A good report might have been baked in the cake after a ten-day 11.7 percent rally in GM shares. Meanwhile, overall options volume includes 18,000 calls and 6,500 puts in the first hour. The top trade is a 3,400-contract block of May 34 calls at 25 cents when the market was 15 to 25 cents. Looks like a buyer and might be a closing trade. The contract is 5.5 percent out-of-the-money and expires in 15 days. 4,594 now traded vs. 13,926 in open interest. The next biggest trade is a 2,500-contract block of Jan 30 puts on the $2.40 bid. May 33 and the Weekly 32 and 33 calls are seeing interest as well. While shares are down, the overall options order flow seems to be somewhat bullish in GM today. Implied volatility has eased 16 percent to 29, compared to a 52-week high and low of 41 and 20.