from OptionsXpress Equity Team xpound newsletter@optionsXpress
November 13, 2013
Stock market averages slid in morning trading, but reversed the losses and are heading higher late-Wednesday. Some of the retailers are seeing relative strength after Macy’s (M) added 9.5 percent on the heels of the company’s latest profit report. Canadian Solar (CSIQ), SINA and MagicJak (CALL) are also higher on profit reports. YRC Worldwide (YRCW) and Markwest Energy (MWE) are among a handful of companies seeing post-earnings weakness. Dow component Cisco (CSCO) will be in focus shortly, as the networking giant is due to report after the close. Elsewhere, markets across Asia were broadly lower after a top level meeting of Chinese officials failed to offer any signals about definitive policy shifts to help combat a recent economic slowdown. Hong Kong’s Hang Seng lost nearly 2 percent and the Shanghai Composite shed 1.8 percent. Equity markets were modestly lower across the Eurozone. Crude oil is up 75 cents to $93.79 on weekly inventory data and gold gained $2.5 to $1273.5. With no domestic economic data to guide trading, bonds are drifting higher and the yield on the ten-year slipped back to 2.73 percent. Meanwhile, the Dow Jones Industrial Average was down 50 points midday and is now up 37. With 20 minutes left in the regular session, the NASDAQ is up 33.
Today’s Bullish Trade
Today’s Bullish Trading
Blackberry (BBRY) adds 2 cents to $6.50 and holding steady this week after losing 16 percent on Monday November 4, when the company announced that it was abandoning recent efforts to sell itself to another party. Shares fell to $6.50 on the news last Monday and haven’t done much since that time. However, on the options front, trading in BBRY has been active. 96,000 puts and 17,000 calls traded on the stock today. The top trade is a 30,600-contract block of December 6 puts at 25 cents per contract. An investor was selling the puts, according to a source on the exchange floor. 46,200 Dec 6 puts now traded on the stock against 83,246 in open interest. It appears that investors are liquidating positions and 30-day implied volatility in Blackberry is falling 10 percent to 53. Yesterday, November 6 puts were being liquidated and open interest in the contract declined by 15,079. Another 24,200 Nov 6 puts traded Wednesday against 48,084 in open interest. The overall activity in battered Blackberry in the past two days, which seems dominated by Nov and Dec 6 closing put sellers, is possibly reflecting the view that a move below $6 per share in the days/weeks ahead is becoming less likely.
Bullish trading was also seen in Pioneer Natural Resources (PXD), Dana Corp (DAN), and Manitowac (MTW).
Today’s Bearish Trading
Quicksilver (ZQK), a Huntington Beach, CA apparel clothing company, is up 44 cents to $9.12 in active trading of 2.2 million shares on positive analyst commentary and options volume on the stock is running 25X the daily average, being driven by one hefty three-way spread. The investor was apparently selling 10,000 January 10 calls on the stock at 40 cents, buying 10,000 January 9 puts for 70 cents, and selling 10,000 January 8 puts at 30 cents. In other words, Jan 10 calls were sold to buy a Jan 8 – 9 put spread. Even money was paid for the combination and, since volume is exceeding open interest in all three contracts, the spread appears to be a new position. ZQK is notching multi-year highs today and the spread trade is possibly a type of protective strategy to help hedge recent gains in shares.
Bearish trading was also seen in AK Steel (AKS), BHP Billiton (BHP), and FAB Universal (FU).
The Russell 2000 Small Cap Index (.RUT) sees higher options volume this morning, driven by one hefty put spread. The index, which tracks the price action of 2000 of the smallest companies, is up 7.25 to 1101.95 and the investor sold a Weekly (expiring 11/29) 1010 – 1020 put spread on the “Russell” at 20 cents per spread, 20000X, according to a source on the exchange floor. That is, they sold 20000 Weekly 1020 puts at $1.30 per contract and bought 20000 Weekly 1010 puts for $1.10. The position is opening because volume exceeds open interest in both strikes. If so, the spread seems to be expressing the view that the index will hold above 1,020 through the end of the month. If not, substantial losses can be suffered (up to 9.8 per spread) if the index falls to 1,010 or below. That is, the spread can widen to $10, which would be the loss, minus the modest 20-cent premium collected for selling the spread (transaction costs excluded).
Analyzing the ETF Market
Market Vectors Russia Fund (RSX) sees increased options activity today. Shares are down 16 cents, or .6 percent, to $28.18 and have now lost nearly 6 percent in the past three weeks. On the options front, a 4,000-contract block of December 29 calls trades on RSX this afternoon for 40 cents per contract. A bit later, another 3,200 traded for 45 cents each. Volume at that strike is now 15,648 contracts against 216 in open interest. Dec 29 calls on the exchange-traded fund are now 2.9 percent out-of-the-money and expiring in 37 days. Some investors are possibly taking positions in the contracts on expectations for a rebound in Russia’s equity markets in the weeks ahead.