After Hours Report for January 27, 2011

Bullish Flow

GM shares jumped 78 cents to $38.67 and an interesting three-way spread trades late in the day today. The focus was in the June options contract. One strategist sold 3,750 June 33 puts at 90 cents, bought 2,500 June 37 calls at $3.88 and sold 3,750 June 42.5 calls at $1.30. In essence, they sold the June 33 – 42.5 strangle 3750X to buy the 2,500 June 37 calls. It's a bullish play, as they are selling June 33 puts and buying a June 37 – 47.5 (2X3) call ratio spread. The position will pay-off well if shares rally to $42.5 or beyond by the June expiration. If GM falls instead, the strategist will be on the hook to buy the stock at $33 because they sold June 33 puts. The automakers could see volatility tomorrow, as Ford Motor is due to release earnings Friday morning.

Bullish trading was also seen in NY Times (NYT), Danaher (DHI), and LSI Logic (LSI).

Bearish Flow

Apache (APA) shares came under pressure Thursday following another day of political unrest in Egypt. The natural gas company has 11 million acres in the region, which contributed 30 percent of total revenues in 2009. Worries about production disruptions sent shares reeling Thursday. APA lost $5.77 to $116.33 and options volume jumped to 10X the recent average daily. 32,000 calls and 27,000 puts changed hands. Players are bracing for additional volatility in the weeks ahead and were buying both puts and calls in February, March and April expiration months.

Bearish flow also surfaced in Genco Shipping and Trading (GNK), Pinnacle Entertainment (PNK), and Infinera (INFA).

Index Trading

The Dow Jones Industrial Index (.DJX) saw more volume than usual. The index, which is equal to 1/100th of the Dow Jones Industrial Average, touched a new 52-week high and settled the day up .05 to 119.90. Meanwhile, options volume included 13,000 puts and 2,620 calls in the DJX. The top trades were part of ratio spreads. For example, 650 December 110 puts traded at $4.80 per contract and 1,300 December 95 puts traded at $1.95. This 1X2 put ratio spread, for a net debit of 90 cents (4.8 – 1.95 – 1.95) is a bearish spread, as it makes its best profits if the Dow falls to 9,500 by the December. An institutional investor looking to hedge their downside market exposure might have initiated the bearish ratio put spreads in the Dow Index Thursday.

Put volume picked up in the SPDR 500 Trust (SPY) Thursday. The exchange traded fund, which holds the S&P 500 names, didn't do much and finished the day up 32 cents to $129.99. Meanwhile, 1.38 million puts and 434,000 calls traded in the "spiders". February 125 puts were the most actives. 268,500 changed hands. Some of the volume was due to butterfly spreads in which one or more investors were selling the 125s for the body of the fly and buying the 123s and 127s for the wings. The Feb 127 puts traded 179,970 and volume in the 123 puts rose to 133,177. These Feb 123 – 125 – 127 put flys are bearish trades, as the max pay-off is at $125 at the February expiration, or 3.8 percent below current levels over the next 22 days.

Posted in Commentary, Futures, Options, Stocks, Watchlist