Bullish and Bearish action for the day after the debt deal

Bullish Trading

CBS is trading up 6 cents to $26.24 after the media company reported quarterly earnings of 58 cents per share, which beat Street estimates by 13 cents. The stock is up and some investors are showing interest in CBS August 27 call options. The top trade is a 1,823-contract block at 60 cents per contract on ISE and was an opening buyer, according to data from the exchange. More than 10,000 now traded against 4,626 in open interest. The Aug 27 call on CBS is 2.9 percent out-of-the-money and expires in 16 days. Some investors might be buying the contract on the view that today’s better-than-expected earnings will boost shares in the short-term. The stock had suffered an 8-day 11.5 percent losing streak prior to today.

Ford Motor (F) is trading down 28 cents to $11.57 and has given up 6.3 percent since Monday after the automaker reported a modest 8.9 percent increase in July auto and truck sales yesterday. Today’s options volume in Ford is noteworthy, as 147,000 calls and 54,000 puts traded in the name so far. Typical volume through midday is about 75,000 contracts. September 13 calls, which are now 12.4 percent out-of-the-money, are the most actives. Volume is approaching 30,000. August 13, August 14, October 13 and October 14 calls are seeing interest as well. Some investors might be taking positions in out-of-the-money call options on hopes for a rebound in Ford shares during the weeks and months ahead. The stock is down 25 percent since April, when it was trading north of $15.

Lowe’s (LOW) shares lost 4 cents to $20.42 and options volume in the home improvement retailer rose to 3X the average daily levels. 28,000 calls and 7,270 puts traded in Lowe’s today. The top trade was a spread, in which the investor apparently bought 5,000 October 22 calls at 50 cents and sold 5,000 October 25 calls at 7 cents. This Oct 22 – 25 call spread, for a 43-cent net debit, traded more than 10000X and might be rolling action – closing out Oct 25s which are 22.4 percent out-of-the-money and have 29,225 in existing open interest. That is, the investor is exiting a bullish position in the 25s and opening a new one in the 22s, which have a lower probability of expiring worthless. Many retailers will be reporting same store sales numbers Thursday morning. LOW is also due to release earnings on April 15 and rival Home Depot reports one day later.

Bearish Trading

Options volume is picking up in the SPDR Retail Trust (XRT) ahead of same store sales results. Many retailers will release July numbers Thursday morning. Options volume in the exchange-traded fund includes 37,000 puts and 12,000 calls through midday. Typical options volume through midday is about 13,000 contracts. September 46 puts, which are now 9.4 percent out-of-the-money and expiring in 45 days, are the most actives. 8,195 traded and, with 81 percent trading at the ask, some investors might be taking positions on concerns that tomorrow’s numbers will weigh on the retail sector – sending XRT lower. August 51 calls, August 49 puts, and August 54 puts on the retail fund are seeing interest as well.

Boyd Gaming (BYD) is trading down 41 cents to $7.53 after Bank of America/Merrill Lynch analysts downgraded shares of the casino operator to Underperform from Buy. Shares are down and options volume is 2.5X the average daily, with 7,575 puts and 245 calls traded in Boyd so far. The action is heavily concentrated in the September 8 puts, which are already 5.9 percent in-the-money. 7,277 traded against 2,399 in open interest . Since 82 percent of the volume traded at the ask, it looks like opening buyers are driving the order flow in BYD Sep 8 puts today.

Put volume picked up in BHP Billiton (BHP) today. Shares of the Melbourne-based metals and minerals company lost 84 cents to $86.71 and came under pressure early-Wednesday after Credit Suisse analysts downgraded the stock to Neutral from Outperform. 13,000 puts and 2,950 puts traded in BHP today. August 82.5 puts saw the most volume. 8,570 traded, including a 6,665-contract block at $1.31 when the market was $1.28 to $1.31. Since existing open interest is 2,929, the trade looks like an opening buyer and short-term bearish play on BHP. The contract is 4.9 percent out-of-the-money and August equity options expire in 16 days.

Volume Signals

SPDR Industrials ETF (XLI) options volume is running 3.5X the (22-day) average, with 186,000 contracts traded and put activity accounting for 76 percent of the volume.

VALE options volume is 2.5X the average daily, with 84,000 contracts traded and call volume representing 62 percent of the activity.

Pulte Group (PHM) options volume is running 7.5X the average daily, with 72,000 contracts traded and put volume representing 99 percent of the total volume.

Volatility Alerts

Barnes & Noble (BKS) shares are down and implied volatility is up today. Shares are off 38 cents to $16.50. Options volume is 3,250 puts and 1,110 calls. January 14 puts, which are 15.2 percent out-of-the-money, are the most actives. 1,970 traded. August 16 puts and September 16 calls are seeing interest as well. Meanwhile, implied volatility in BKS options is up 30 percent to 44.5. The increased activity is probably in reaction to a Wall Street Journal story today that notes Liberty Media is working on lining up financing go acquire the bookseller.


Index Recap

Volatility fell, but volume in the index market remained brisk Wednesday. 1.08 million calls and 855,000 puts traded across the S&P 500 Index (.SPX), NASDAQ 100 (.NDX) and other cash index products today. The CBOE Volatility Index (.VIX) lost 1.41 to 23.38 after the S&P 500 erased early losses and closed the day up 6.29 points to 1,260.34. Meanwhile, VIX August 30 calls were the most actively traded index contract. 41,550 changed hands. Another noteworthy trade in the volatility index today was an October 18 – 25 – 32.5 call butterfly spread, which was bought at $1.625, 3000X. This advanced options play targets VIX at $25 (middle strike of the spread, which was sold 6000X) through the October expiration. Excluding commissions, the breakevens are roughly at 19.625 and 30.875. The max profit happens if VIX settles at 25. By creating a butterfly rather than buying calls or call spreads, the strategist appears to be targeting a range for the VIX from now through October.


Analyzing the ETF Market

Volume was heavy in the exchange-traded funds for a second day. 6.2 million puts and 3.9 million calls traded across the SPDR 500 Trust (SPY), iShares Small Cap Fund (IWM), and other ETF yesterday. Today, volume was 7.6 million puts and 4.6 million calls, which is almost twice the recent average daily volume, according to Trade Alert data. SPY, IWM, SPDR Retail Trust (XRT), Proshares Ultra Short Government Bond Fund (TBT), SPDR Industrials ETF (XLI), SPDR Energy ETF (XLE), Dow Jones DIAMONDS (DIA), and US Oil Fund (USO) all saw volume well above their recent average daily levels. SPY August 124, 125, and 130 puts were the most actively traded ETF contracts. The SPYders closed the day up 68 cents to $126.17.

Posted in Charting & Analysis, Commentary, Earnings, Options, Stocks