Thursday Options Recap

Includes: BAC, DAL, MSFT, P
by: Frederic Ruffy


Stocks are broadly lower on worries about the global economy. Domestic economic data was mostly bearish after Jobless Claims showed a decrease of only 2,000 to 386K last week. Economists were expecting a larger decline to 375K. A separate report released later showed Existing Homes Sales falling to a 4.48 million annual rate in March. Economists were expecting 4.62 million. Meanwhile, the Philadelphia Fed Survey fell to only 8.5 in April. The rocket scientists had that wrong too. They were expecting a decline to 10.3 from 12.5. Volatility across the Eurozone added to the worries. Spain's IBEX lost another 2.4 percent and fell to levels not seen in three years on concerns about bank exposure to bad loans. Trading in the commodities markets has been relatively quiet today. Crude oil lost 30 cents to $102.93 and gold ticked $2 higher to $1641.5 an ounce. Meanwhile, the Dow Jones Industrial Average was modestly lower at midday with BofA (NYSE:BAC) and American Express (NYSE:AXP) trading lower on earnings, but the selling picked up a bit in afternoon action. The Dow is now down 88 points, but post-earnings gains in Verizon (NYSE:VZ) and Traveler's (NYSE:TRV) are helping to limit the damage. The NASDAQ is down 23 points despite a sharp post-earnings rally in EBAY and strength in the biotech space on report Glaxo has bid for Human Genome Sciences (HGSI). Meanwhile, CBOE Volatility Index (.VIX) is unimpressed and is down .04 to 18.60. Trading in the options market is active heading into expiration-Friday. 8.8 million calls and 8.4 million puts traded so far.

Bullish Flow

Microsoft (NASDAQ:MSFT) is down 7 cents to $31.07 in active trading approaching 40 million shares heading into this afternoon's earnings release. Options on the software-maker are very busy as well. 231K calls and 135K puts traded on the stock so far, which is 3.5X the daily average. April 32 calls, which are 3 percent OTM and will have one day of life remaining after today, are the most actives. More than 80,000 contracts have traded at a value-weighted average price of 14.3 cents per contract. Open interest in the Apr 32 call is 88,097 and the largest of any of the front-month contracts. Some of the flow is closing, as MSFT hasn't seen large post-earnings moves in recent quarters. The average daily move after the previous four reports has been just 2.7 percent. One sigma post-earnings range (based on current vol skew) for the stock is between $30.3 - $31.95

BofA (BAC) is seeing heavy post-earnings trading activity during the first hour of Thursday's trading session. The stock is up 14 cents to $9.06 on volume of 129 million shares. 321,000 options traded on the bank, including 259,000 calls and 62,000 puts. Today's most actively traded contract is the April 9 call on BAC, which is 6 cents in-the-money heading into the expiration. 110,748 contracts. Today's 15 most active contracts are options on either BAC, SPY, AAPL, or SPX. Total volume in those four tickers is approaching 1.2 million, which accounts for roughly 25 percent of today's overall options activity - of 4.7 million contracts traded so far acorss the nine exchanges. Meanwhile, implied volatility in BAC has eased 10.5 percent to 41, but remains well above this year's low of 35 (from 3/7) and the 52-week low of 23 (on 4/29).

Pandora (NYSE:P) is up 48 cents to $8.54 in active trading of 1.8 million shares and implied volatility in the options on the stock is up sharply amid increasing call activity today. Total volume is about 12,000 calls and 4,000 puts, which is 5X the daily average for the name. The action has been in smaller sizes and includes a multi-exchange sweep of 1,519 Jun 9 calls for 65 cents per contract. 6,590 traded and it appears that the flow is being driven by a combination of customer and firm buyers, according to ISEE data. Apr 9, Jun 8 and Jun 10 calls are also seeing interest and 30-day ATM implied vols are up 26 percent to 77, as it appears that speculative call buyers are dominating the action in Pandora today. Some investors are possibly anticipating a rebound after the stock's dismal performance lately. P is down 43.5 percent since earnings were reported on March 6 and were falling to new post-IPO lows yesterday.

Bearish Flow

Delta Airlines (NYSE:DAL) is up 33 cents to $10.86 on increasing volume of 14 million shares amid strength in the sector on reports Labor Unions are in favor of the LCC-AMR deal. Trading in Delta options is busy as well, with 14,000 calls and 6,630 puts traded on the airliner so far. The top trade appears to be a Jun 10 - 11 bearish risk-reversal at 65 cents, 1116X and is possibly a closing trade after this week's four-day 7 percent winning streak in Delta shares. Or, it might be opening -- a possible collar to hedge recent gains in DAL. The stock has rallied 17.2 percent in a little more than month, ahead of an Apr 25 earnings report. The bearish Jun 10 - 11 combo has traded multiple times today and volume in the Jun 11 calls on Delta is approaching 7,000. 5,300 Jun 10 puts traded. Apr 10, Apr 11 and Jun 12 calls are the next most actives and 30-day ATM implied volatility in DAL options is up 1 percent to 49.

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