Thursday Options Recap

Sentiment

An exciting trading session Thursday was not. Retailers were in focus early as a number of companies, including Costco (COST), The Gap (GPS), and American Eagle (AEO), reported January same store sales results that topped expectations. Attention was also on the day’s economic data, which included a decline of 42,000 in jobless claims during the final week of January. Economists were looking for a drop of 32,000. The ISM Services Index also improved more than expected. The gauge of non-manufacturing activity jumped to 59.4 in January, from 57.1 in December and significantly better than the 57 that was expected. Finally, separate data showed Factory Orders up .2 percent in December. Economists were way off the mark on that one too. They were looking for a decline of .6 percent. The surprisingly strong economic data and same store sales numbers are weighing on bonds. The yield on the ten-year is now at 3.54 percent and moving beyond the multi-month highs seen in mid-December. Escalating civil unrest in the Arab world is also a factor. Nevertheless, trading on Wall Street has been orderly and, in fact, the Dow Jones Industrial Average is up 15 points heading into the final hour. The tech-heavy NASDAQ is up 3.5 points and 27 points off of session lows. The CBOE Volatility Index (.VIX) gave up .58 to 16.72. Overall options trading volumes are light, with 7.1 million calls and 6.1 million puts traded so far.

Bullish Flow

Massive trade in Yahoo (YHOO) Thursday morning after an investor pays 30 cents for the April 18 – 20 call spread, 46500X. The position is tied 744K shares at $16.45 and looks like an aggressive play on the Internet giant. 53000 now traded and might roll down in strike prices, as open interest in the April 20s is 53,873. April 18s look opening.

Spyders (SPY) lost 20 cents to $130.29 Thursday morning and on investor sells 66000 Feb 132 calls at 69 cents to buy the Mar 132 – 135 call spread at $1.08, 100000X. The impressive three-way spread looks like a roll out of Feb calls and into a bullish spread in March.

Bearish Flow

CVS Caremark (CVS) gapped lower at the open and is trading down $1.75 to $32.90 after the company reported fourth quarter earnings that beat Street views, but revenues missed expectations and CVS also offered downside guidance for the 2011 fiscal year. Shares are now down 4 percent since 1/28 and some investors appear to be liquidating Feb 33 puts and calls on the news. Mar 32 puts are the most actives. 2,300 traded (91 percent bid) vs. 1,259 in open interest, as some investors might see the weakness as an opportunity to write out-of-the money puts. Feb 34 calls, Mar 33 puts, May 33 puts, and May 35 puts are seeing interest as well. Implied volatility is down 15 percent to 23, compared to a 52-week high and low of 39 and 20.

Implied Volatility Mover

Heavy trading in China MediaExpress (CCME) options. Shares are down 35 cents to $16.26 and 13,500 puts traded on the Hong Kong ad agency. The action is scattered across Feb puts with strikes ranging from 10 to 18. Mar 15 puts are seeing some interest as well. Implied volatility is up another 15 percent to 158 and has rallied (from about 98) since shares came under pressure in late-January on negative broker commentary. Shares have now tumbled 28.8 percent since 1/28.