Thursday Options Recap

Includes: BID, EEM, MSFT
by: Frederic Ruffy


Stock market averages drifted lower at the open despite better than expected claims data and remain in the red late-Thursday. The Labor Department reported this morning that filings for benefits declined by 27,000 to 365K in the final week of April. Economists were expecting 375K and the larger than expected decline should hold some sway because it comes ahead of Friday's monthly jobs report, which is expected to show the economy adding 162K payrolls for April. However, stock market averages struggled at the open and slipped mid-morning after ISM Services Index fell to 53.5 in April, from 56 in March and below expectations of 55. Falling oil prices are weighing on the energy-related names after crude slid $2.67 to $102.55 following pledges of more supply from OPEC's secretary general. Gold lost $18 to $1636 an ounce. Trading on Wall Street is cautious, but the decline has been orderly thus far. With thirty minutes left to trade, the Dow Jones Industrial Average is down 57 points and the tech-heavy NASDAQ lost 32. CBOE Volatility Index (.VIX) is up .68 to 17.56 amid increasing volumes in the option market. 6.7 million calls and 6.3 million options traded across the exchanges so far.

Bullish Flow

Sotheby's (NYSE:BID) is down $2 to $37.10, even after the company auctioned Edvard Munch's "Scream" yesterday in a record $120 million auction for a work of art. One player in the options market might be adjusting a position in BID, as it appears that 2,900 May 42 calls were sold on the auctioneer at 35 cents per contract to buy 1,350 May 39 calls for $1.10. The activity in the 42s, which are 13.2 percent OTM and expiring in 16 days, might close. The May 39 calls appear to be a new position, perhaps on the view the stock will recover today's $2 loss and a bit more through the May expiration. Earnings were last reported on Feb 29. Shares fell 9.1 percent on the news, to $35.75, and had recovered all of the loss one month later. Trading has been choppy since that time.

Bearish Flow

iShares Emerging Markets Fund (NYSEARCA:EEM) loses 18 cents to $42.23 and 31000 Jun 40 puts are bought on the ETF for 67 cents per contract on PHLX. Looks tied to 487K shares at $42.22 and possibly to hedge the risk of increasing volatility in global financial markets ahead of jobs data Friday and upcoming French and Greek elections. June 40 puts on EEM are 5.3 percent OTM with a -.26 delta and expiring in 43 days. 35,639 now traded against 122,765 in open interest.

Linked In (LNKD) is up 35 cents to $106.75 in relatively quiet trading of 2.9 million shares (2.3 million is the expected) ahead of this afternoon's earnings release. Options volume is running 3.5X the daily average, with 36,000 calls and 42,000 puts traded on the stock so far. 48 percent of the volume is in the 5/4 Weeklys and 6.5 percent in the 5/11 Weeklys. May puts and calls have captured 30.5 percent of the flow. Therefore, only 15 percent of the pre-earnings volume in LNKD is beyond the front-month May options. The biggest trades are 1,042 and 769-lots of Weekly (5/4) $100 puts for $3.30 and $3.26 per contract, respectively, on ISE. Both are opening buyers, according to ISEE. 5,160 traded total. Weekly (5/4) 90 puts, 95 puts, and 115 calls are the next most actives and 30-day ATM implied vols are up 7.5 percent to 80. The stock tends to see relatively volatile moves around profit reports. The average daily move over the past three quarters is 9.3 percent. The market seems to be anticipating a bigger move this time. The Weekly (5/11) ATM straddle trades at 13.7 percent of spot and the one sigma post-earnings range based on skew is between $90.94 to $125.52.

Implied volatility Mover

MGM shares are off 43 cents to $13.12 in active trading of 14.5 million shares and dipped this morning to test March/April support lows just south of $13 this morning after the casino operator posted a wider-than-expected first quarter loss. Some players seem to be anticipating a rebound before the weekend, however, and are opening new positions in Weekly $13 calls on MGM at prices ranging from 19 to 40 cents. Some of the flow is possibly selling and/or liquidating trades, but ISEE is reporting that customers are buying to open new positions as well. More than 15,000 now traded against just 462 in open interest. The contract is 12 cents in-the-money and the market is 25 to 27 cents. Weekly 14 calls are seeing active trading as well. The post-earnings call started at 11:00 ET. Total volume is now 31,000 calls and 7,920 puts and 30-day ATM implied vols are down 12 percent to 36.