Midday 03-27-2013

Stock market averages fell Wednesday morning amid ongoing worries about problems in Europe. The euro lost .7 percent to 1.2777 on the dollar, falling to its lowest levels since mid-November, and Europe's equity markets were broadly lower as well. Italy is now in focus, as the country struggles to put together a government on the heels of inconclusive elections a month ago. On the domestic news front, the only economic stat of the day was a report on Pending Home Sales. The data showed a decline of .4 percent for February. A 2 percent increase was expected. Stock market averages had already fallen into the red ahead of the report and there was relatively reaction to the headline. The Dow Jones Industrial Average is now down 50 points after reaching record highs yesterday. The Dow is 60 points off session lows, however. The NASDAQ dropped 7.5 points. CBOE Volatility Index (.VIX) is up .33 to 13.1. Overall trading in the options market is light again, with 2.5 million calls and 2.25 million puts traded across the exchanges through 11:15am ET.
Bullish Flow

Intel (INTC) is up 15 cents to $21.91 and among five Dow stocks holding gains through midday. Options on the world's largest chipmaker saw noteworthy action this morning. The largest trade was a 16,000-contract block of June 23 calls traded for 26 cents per contract on the ISE. Data from the exchange indicate an investor bought the calls, to open a new position. More than 27,000 June 23 calls now traded in Intel against 10,898 in open interest. Weekly (3/28) and April 22 calls are the next most actives in the name. Total volume is 66,000 calls and 27,000 puts.
Apollo Group (APOL) drops 68 cents to $17.08 on an analyst downgrade Wednesday and options volume on the stock is running 2.5X the daily average. 9,960 calls and 1,275 puts traded in the for profit education company. May 20 calls are seeing the most volume. 5,820 contracts traded, including a 500-contract lot for 34 cents per contract this morning when the market was 26 to 35 cents. The stock saw a spike Monday on earnings, but has since lost 6.4 percent. Some investors are possibly taking positions in May 20 calls on APOL on the view the recent decline is overdone.
Bearish Flow

Cisco (CSCO) is off 10 cents to $20.74 and one of 25 Dow stock trading lower heading into midday Wednesday. On the options front, April 21 calls are the most actives in the networking giant. More than 36,230 contracts have changed hands against 52,225 in open interest. The top trade is a 2750-lot at 19 cents per contract when the market was 19 to 21 cents. It is possibly liquidating activity. That is, the investor was long the Apr 21 calls on Cisco and is now offsetting the position by selling-to-close. If so, the closing activity might reflect diminishing expectations for a rally in CSCO to more than $21 through the April expiration, which is three weeks from this Friday.
Xilinx (XLNX), a semiconductor equipment company, is down 19 cents to $38.01 and put volume is outpacing call activity on the stock by ratio of almost six-to-one. 18,000 puts and 3,100 calls traded in XLNX so far. April 37 puts, which are 2.7 percent out-of-the-money and expiring in 23 days, are the most active in the name. 12,430 contracts changed hands. January 37 puts are the second most active after 3,340 traded. It's not clear what is motivating the increased interest. Some investors are possibly buying protective put positions against stock on concerns about a potential drop in XLNX shares over the next few weeks.
Unusual Volume

Deutsche Bank (DB) options volume is running 4.5X the (22-day) average, with 18,000 contracts traded and put volume accounting for 96 percent of the volume.
Xilinx (XLNX) options volume is 5X, the average daily, with 17,000 contracts traded and put option volume representing 91 percent of the activity.

Apollo Group (APOL) options volume is running 2.5X the average daily, with 11,000 contracts traded and call volume accounting for 88 percent of the activity.
Increasing options activity is also being seen in TIVO, AOL, and Paychex (PAYX).
Implied Volatility Mover

Implied volatility in the options on Cliffs Natural Resources (CLF) is higher, as shares of the Cleveland, OH iron ore company fell on an analyst downgrade Wednesday. The stock is down $3 to $18.43 in heavy trading of more than 23 million shares. In options action, 38,000 calls and 23,000 puts traded on the stock, which is well above the recent average daily levels of 44,000 contracts. January 35 and May 20 calls are the most actives. 30-day implied volatility in CLF jumped 27 percent to 66 and new 52-week highs.
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