Cusick's Corner
This has been a nice and orderly Expiration week even with futures and December options coming off over the next 24 hours. The market is watching earnings — been positive, the bonds — prices have firmed and the EU — finance ministers have been quiet. The market is still stuck at resistance and needs to break through with conviction. We are at levels that we have not seen in years. Leading Indicators are due out in the morning and if you have a December option, make sure that you are managing it — tomorrow is Expiration Friday. See you Midday.
Stocks finished higher with help from economic news Thursday. Data released before the opening bell showed Housing Starts up to an annual rate of 555,000 in November, from 534,000 the month before and better than the 545,000 economists had predicted. Separate data showed weekly jobless claims falling by 3,000 to 420,000 in the period ended December 11. Economists were looking for an increase of 2,000. Then, later in the day, the Philadelphia Fed Survey was release and showed surprise improvement to 23.4 in December. Economists were looking for the gauge of manufacturing activity to fall to 13.0, from 22.5 the month before. While trading was choppy early, stocks found some strength on the heels of the stronger manufacturing numbers. Through midday, the Dow Jones Industrial Average was up 45 points. Not much happened from that point forward. At the closing bell, the Dow was up 42 points. The tech-heavy NASDAQ added 20. Volume and volatility might pick up a bit tomorrow morning due to the Quadruple Witch options expiration. Check your positions and know your assignment/exercise risks. Tomorrow is the last day to trade December options.
Bullish Flow
AK Steel (AKS: 15.36 +0.95 +6.59%) saw relative strength and increasing call volume Thursday. Shares traded up 95 cents to $15.36 and closed the day very near session highs. It's not clear what was driving the gains, but other names in the sector (X, MT, STLD, NUE) posted solid gains as well. So, it might be a sector play. Meanwhile, in AKS options, call volume surged. 29,000 contracts changed hands, which is 4X the normal and almost 10X the day's put volume. January 19 calls, which are 23.7 percent out-of-the-money with roughly five weeks left till expiration, were the most actives. 10,730 traded. December 15, Jan 15, Jan 16, and Jan 17.5 calls saw brisk trading as well.
Bullish order flow was also seen in Overstock.com (OSTK: 17.30 +0.81 +4.91%), NASDAQ OMX Group (NDAQ: 23.46 +0.93 +4.13%), and Winnebego Industries (WGO: 14.96 +1.87 +14.29%)
Bearish Flow
Fifth Third (FITB: 13.92 -0.24 -1.69%) saw volatile market action Thursday. Shares sank on increasing volume in afternoon trading and finished the day down 24 cents to $13.92. Options volume hit 3X the average daily. 22,000 puts and 3,540 call options traded on the regional bank. December 14 puts, which expire at the end of the week, were the most actives. More than 11,130 traded. In addition, open interest is 1,169 and 54 percent traded at the ask, suggesting buyers were opening some of the day's trades. There was no news on the stock, but the volatile action in the stock and short-term put buying seems to reflect anxiety about the outlook for FITB ahead of the weekend.
Bearish flow also picked up in AstraZeneca (AZN: 49.23 -0.05 -0.10%), MonsterWorldwide (MWW: 24.71 +0.46 +1.90%), and Anheuser Busch (BUD: 57.46 +0.34 +0.60%).
Index Trading
Options action picked up in the index market due to the options expiration. Many (not all) cash-settled index options stop trading Thursday because settlement values are computed Friday morning, before the expiration Saturday. Consequently, volume often picks up on the Thursday before expiration Saturday. Today, for example, 764,000 calls and 539,000 puts traded across the S&P 500 Index (.SPX) and other cash indexes. The top trades of the day were in the CBOE Volatility Index (.VIX), which unlike other cash indexes expires on Wednesdays. VIX finished the day down .55 to 17.39 and one strategist apparently sold 23,500 January 37.5 calls at 15 cents each to buy 23,500 February 37.5 calls at 55 cents. This calendar spread, for a net debit of 40 cents, was possibly a roll and or a bet that VIX will stay below 37.5 through the January expiration before rallying into February.
ETF Trading
Trading in the exchange-traded fund options surged Thursday, not only because of the expiration, but because of dividend-related trading activity. About 15 million calls and 3.55 million puts traded across the exchange-traded funds. December 15 calls on the Financial Select Sector Fund (XLF: 15.50 +0.02 +0.13%) were among the most actives. 1.89 million contracts traded! Shares added 2 cents to $15.50 and the surge in volume in these in-the-money calls is related to a strategy, implemented primarily by institutional investors, designed to profit from the fact that not all in-the-money calls will be exercised around the dividend, which is normally the optimal thing to do.
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