Mid Day Options Market Commentary for September 27, 2012options Xpress - Thursday, September 27th, 2012
Short and sweet today -- the catalyst, QE3, is in play and the data continues to disappoint. I am keeping an eye on, as far as gauging the next potential move in equities -- Crude markets. Crude has been highly correlated to the equities and if there is pressure to the downside in Crude (the GDP data did not help), this could put pressure on the equities. See you After Hours.
Stock market averages are holding modest gains on a relatively slow morning of trading, as gains in overseas markets seemed to offset a round of poor domestic economic data. Hong Kong's Hang Seng rose 1.2 percent overnight on reports the Chinese Central Bank initiated record levels of reverse repo operations during the past week. In Europe, stock market averages are holding modest gains after big losses suffered yesterday, but there has been no fresh catalyst to move market averages one way or the other (although Spain is due to release budget plans a bit later Wednesday). Financials and Industrials are leading France's CAC 40 to a .7 percent gain. On the domestic economic front, the news was less than stellar. A report on August Durable Goods showed a surprise 13.2 percent drop. Economists were expecting -5 percent. GDP was at a 1.3 percent annual rate in the second quarter. 1.7 percent was expecting. Pending Home Sales were down 2.6 percent in August, compared to expectations of .5 percent. Jobless Claims were the sole bright spot, falling to 359K last week, from 385K and better than the 379K that was expected. Yet, the data were mostly poor and the Dow Jones Industrial Average has trimmed its gain to only 4 points heading into midday. The NASDAQ is up 14 points. CBOE Volatility Index (.VIX) is off .59 to 16.22. Trading in the options market is much lighter than the day before, with about 2.6 million calls and 2.2 million puts traded across the exchanges through 11:20am ET.
This Morning's Bullish Trading
Yahoo (YHOO) is up 25 cents to $15.86 and extending recent gains. Shares have now added more than 8 percent so far this month and are seeing a modest move higher Wednesday after Goldman Sachs reinstated the stock with a Buy rating. One player in the options market seems to share a bullish view on the Internet behemoth and bought a November 17 – 18 call spread on YHOO for 12 cents, 10000X. In this plain vanilla call spread, the investor bought 10,000 November 17 calls on the stock for 19 cents and sold 10,000 November 18 calls at 7 cents. The spread looks opening because volume exceeds open interest in both contracts. If so, the position is a bullish play on YHOO with a max payout if shares rally to $18 or more through the November expiration, or 13.5 percent in the next 50 days. The breakeven is equal to the lower strike plus the cost of the trade (debit and transaction fees).
Accenture (ACN), the Irish management consulting and technology company, might be a name worth watching tomorrow. The company is due to release earnings after market hours today and shares are trading modestly higher, up 4 cents to $64.39, ahead of the news. Meanwhile, options volume in ACN is 3X the daily average. 4,340 calls and 1,800 puts so far. The October 67.5 calls, which are 4.8 percent out-of-the-money and expiring in 22 days, are the most actives. 1,234 traded. October 65 and Weekly 67.5 calls are seeing interest as well. Meanwhile, implied volatility in ACN options is moving up 4 percent to 27 ahead of the earnings news.
This Morning's Bearish Trading
Bearish trading continues in the SPDR Financial Fund (XLF). We noted a substantial December 13 – 15 put spread traded for 31 cents, 50000X on the ETF in yesterday's midday update. Today's open interest numbers indicate a new position was opened in this hefty spread. Shares are up 12 cents to $15.62 Wednesday and volume in XLF is 44,000 puts/16,000 calls. The largest trades are part of an advanced options strategy known as a put ratio spread. In this play, the investor bought 10,000 December 15 puts on XLF and sold 20,000 December 13 puts. The Dec 13 – 15 (2X1) put ratio spread was bought for 22 cents per spread and appears to be a bet that XLF will fall towards $13 through the expiration. Like yesterday, the put spread is possibly to help a hedge a portfolio of financial names through the historically volatile period of October.
iShares Hong Kong Fund (EWH) rose 27 cents to $18.14 after reports released Wednesday indicated that the People's Bank of China completed a record number of reverse repurchase operations in the amount of CNY365 billion during the past week. EWH is ticking higher on the news, but options order flow on the ETF seems somewhat defensive today. 1,886 puts and only 1 call option traded on the fund so far. November 18 puts, which are 14 cents out-of-the-money and expiring in 50 days, are the most actives. 960 contracts changed hands. Volume in the November 17 puts is approaching 800 contracts.
Deckers Outdoors (DECK) options volume is running 3X the (22-day) average, with 28,000 contracts traded and call volume accounting for 86 percent of the volume.
Regions Financial (RF) options volume is 7.5, the average daily, with 24,000 contracts traded and call volume representing for 87 percent of the activity.
Coca Cola Enterprises (CCE) options volume is running 7.5X the average daily, with 16,000 contracts traded and call volume accounting for 100 percent of the activity.
Increasing options activity is also being seen in Safeway (SWY), Murphy Oil (MUR) and Accenture (ACN).
Implied Volatility Mover
Implied volatility in Regions Financial (RF) is moving higher amid increasing call activity on the Birmingham, AL regional bank today. Shares are up 5 cents to $7.20 and options volume is running 7.5X the daily average. 21,000 calls and 3,000 puts traded in RF so far. The flow is concentrated in October 7 calls, where volume is approaching 20,000 contracts. It's not clear what is motivating the activity, but implied volatility in RF options is moving up 19 percent to 36.
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