Mid Day Options Market Commentary for October 5, 2012options Xpress - Friday, October 5th, 2012
Under 8% -- unemployment came under the 8% level which did surprise, that's the lowest level in 3 years. Now some might wonder why the markets are not reacting more favorably, the devil is in the details -- a large portion of the jobs that were added were part-time. The reality is that payrolls will have to start show 200K+ and be consistently over that level before employment will be considered back on track. The action is muted and the offensive segments, Small Caps, Base Metals. Tech, XLY, need to gain some momentum. See you After Hours.
Stock market averages are holding gains midday Friday after key jobs data showed a surprise drop in the unemployment rate. The headline number was a bit worse-than-expected after the Labor Department reported that the US economy added 114,000 jobs last month. Economists were expecting 120,000. However, the rate of unemployed declined to 7.8 percent, from 8.1 percent and better than the 8.1 percent that was expected. Hourly earnings increased by .3 percent and .1 percent more than expected. Elsewhere, equity markets were broadly higher across the Eurozone and the euro added .25 percent to 1.305 against the dollar, the day after the ECB concluded its policy meeting and pledged further bond buybacks. Gold slid $10.8 to $1785.7 and crude is down $1.61 to $90.10. However, on Wall Street, the Dow Jones Industrial Average is up 57 points and the NASDAQ gained 8.5 points. CBOE Volatility Index (.VIX) is off .21 to 14.34. Trading in the options market has been active this morning, with about 3.6 million calls and 2.8 million puts traded across the exchanges through 11:15am ET.
This Morning's Bullish Trading
Ford Motor (F) is up 7 cents to $10.19 and is up 3.4 percent on the week. Ford shares slipped Tuesday on the heels of September auto sales results, but have been higher for three days straight since that time. Some investors in the options market seem to be anticipating additional gains for Ford shares, as about 45,000 calls and 8,900 puts traded in the name so far today. January 11 calls, which are nearly 8 percent out-of-the-money and expiring in 105 days, are the most actives in Ford today. More than 17,000 contracts have changed hands. December 11, December 12, and Jan 10 calls are among the most actives as well.
LexMark (LXK), the computer component-maker, is trading up 94 cents to $22.17 on volume of 1.75 million shares and options order flow on the stock seems to reflect bullish sentiment in the name. About 11,000 calls and 250 puts traded on LXK, which represents 5X the daily average volume for the name. Recent trades include a 1400-lot of October 23 calls for 40 cents when the market was 35 to 40 cents. It's possibly a buyer initiating the traded and looking for LXK to leap beyond $23 by the October expiration, which is in two weeks. 6,430 October 23 calls now traded in the name. January 22 and November 26 calls are the next most actives in LXK today.
This Morning's Bearish Trading
Vringo (VRNG), a New York-based application software-developer, is down 41 cents to $4.84 and giving back some of the gains seen over the past two days. Shares surged 70 percent Wednesday and Thursday after the company received a positive decision in a patent ruling against Google. The stock is giving back some of the gains today and one investor apparently sold 15,000 November 5.5 calls on the stock at $1.20 to buy 15,000 November 4 puts for $1.25. If so, a nickel was paid for this bearish "risk-reversal". A shareholder with a stock position might have initiated the trade to hedge or "collar" the stock after the surge in the price Wednesday and Thursday.
First Solar (FSLR) is falling today, down $2.55 to $20, in active trading of 8.3 million shares on cautious analyst commentary. Shares are lower and trading in the options on the solar energy company is brisk. About 60,000 calls and 34,000 puts traded in the name so far. October 20 puts, which are now at-the-money and expiring in 14 days, are the most actives in FSLR. 7,600 traded. Expiring Weekly 20, 20.5, and 21 puts are the next most actives and implied volatility in the options on the stock is up 10.5 percent to 84.5.
Zynga (ZNGA) options volume is running 3X the (22-day) average, with 66,000 contracts traded and call volume accounting for 64 percent of the volume.
First Solar (FSLR) options volume is 2X, the average daily, with 82,000 contracts traded and put volume representing for 64 percent of the activity.
MetroPCS (PCS) options volume is running 5.5X the average daily, with 115,000 contracts traded and put volume accounting for 68 percent of the activity.
Increasing options activity is also being seen in GM, Ocwen Financial (OCN), and SPDR Consumer Discretionary Fund (XLY).
Implied Volatility Mover
Implied volatility in the options on Groupon (GRPN) is higher. Shares hit a low of $4.71 this morning following disappointing earnings news from social media company Zynga (ZNGA). However, GRPN has erased the morning loss and is now up 24 cents to $5.04 in active trading of almost 9 million shares. Options volume is more than double the daily average. 32,000 calls and 2,250 puts traded in the name so far. October 5.5 calls are the most actives. 20,500 traded. Meanwhile, implied volatility in Groupon options is moving up 10.5 percent to 84.5.
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