In options trading today, the best stock picks seeing speculative activity and the CBOE Volatility Index (VIX) continues its move upward as volume heats up. Several retailers buffeted by bears including Walmart (NYSE: WMT), Abercrombie & Fitch (NYSE: ANF), and American Eagle Outfitters (NYSE: AEO). Bulls liked Microsoft (NASDAQ: MSFT), and Ford (NYSE: F).
Sentiment
Major averages are mixed heading into the final hour of trading Thursday. The table was set for a bit of weakness at the open after the Labor Department reported that filings for jobless benefits increased by 18,000 to 409,000 last week. Economists were looking for an increase of 14,000. While the headline number didn’t miss by much, it had a market impact because it comes ahead of key jobs data tomorrow. Meanwhile, SPDR S&P Retail Trust (NYSE: XRT) is down .62 cents to $47.14 following a round of mostly disappointing December same store sales numbers from the retailers. Walmart is one of 21 Dow stocks in the red and the industrial average is off 32 points. The tech-heavy NASDAQ has added 6 points. The VIX gained .38 to 17.40.
Bullish Flow
Today’s speculative activity in the options market on a down session is impressive. The S&P 500 is off 4.3 points and breadth is negative, with 175 S&P 500 components higher and 320 in the red. Yet, the tech-heavy NASDAQ is up 3.4 points and there’s been a flurry of speculative activity in individual names, one hour before the close. For example, 209,000 calls traded in chipmaker NVIDIA Corp. (NASDAQ: NVDA) on news of a new chip to compete with Intel (NASDAQ: INTC). Trade of 115,000 calls on Yahoo (NASDAQ: YHOO) on takeover speculation, 20,000 in Aetna (NYSE: AET) on a broker upgrade, 33,000 in Dell (NASDAQ: DELL) on new tablet announcement, 192,000 in Microsoft, 105,000 in General Motors (NYSE: GM), 178,000 in Ford, 45,000 in AMR Corp. (NYSE: AMR). You get the idea. Nine million calls and 6 million puts traded on a day with minimal ex-dividend activity. The put-to-call ratio of .67 and flurry of speculative activity in individual names reflects relatively high levels of bullishness and perhaps frothy market conditions in early-2011.
The top equity options trade so far today is in Microsoft. Shares are up 47 cents to $28.47 and helping to keep the tech-heavy NASDAQ above water midday. Meanwhile, the top options trade is a block of 36,242 MSFT March 28 Calls at $1.08 apiece on the International Stock Exchange and an opening customer buyer, according to exchange data. Total of 46,000 contracts now traded versus 2,878 in open interest.
Bearish Flow
Abercrombie & Fitch trades down 64 cents to $54.70, even after the retailer reported a 15% increase in December same-store sales. Analysts were looking for a 10.1% increase. A noteworthy three-way spread was opened yesterday ahead of the news. In this play, the strategist apparently sold 1,900 ANF August 70 Calls at $2.30 to buy the Aug 35 – 50 put spread at $3.93. Separately, a block of 9200 ANF Feb 60 Calls traded at $2.10. Market was $2.28 to $2.33 and open interest indicates a new position was opened.
Implied Volatility Mover
American Eagle Outfitters fell to a low of $13.72 this morning on disappointing December same-store sales numbers, but then rallied to a high of $15.69 amid mounting speculation after the company canceled out of a conference later this week. Shares are now up .60 cents to $15.07 and options volume is running 18 times the average daily numbers. One hour before close, 86,000 calls and 12,000 puts traded on the retailer. Speculative call buying is focused on the Jan and Feb calls with strikes ranging from 14.5 to 17.5. Implied volatility is up 15% to 45.
Unusual Volume Movers
Bullish flow detected in JDS Uniphase (NASDAQ: JDSU), with 9987 calls trading, or four times the recent average daily call volume.
Bullish flow detected in Dell, with 30,314 calls trading, or three times the recent average daily call volume.
Bullish flow detected in Masco Corp. (NYSE: MAS), with 10,619 calls trading, or three times the recent average daily call volume.
Increasing volume is also being seen in Yahoo, AMR, and Target (NYSE: TGT).
How we interpret:
Sophisticated real-time tools created by TradeAlert for institutional traders are used to provide indication of buyer and seller, opening trades, greeks, and more. In conjunction with our market expertise, historical data and a network of brokers and market participants we are able to clarify what’s trading and explain the potential motivation behind activity clearly and accurately.
This article is by Frederic Ruffy, the Senior Options Strategist at Whatstrading.com, a site dedicated to helping traders make sense of the complex and fragmented nature of listed options trading.
