pfe-300x201Wednesday’s total option volume of 23.2 million contracts resulted in net open interest growth of 3.31 million calls and 3.63 million puts.  Pfizer  Inc (PFE), Facebook Inc (FB), Merck and Co Inc (MRK) and Micron Technology Inc (MU) saw the greatest growth. Top five new positions opened include 105k Pfizer Inc (PFE) Jun-13 35 puts, 100k Pfizer Inc (PFE) Jun-13 35 calls, 31k Rite Aid Corp (RAD) Oct-13 3 puts, 31k MannKind Corporation (MNKD) Jan-14 9 calls and 30k Cheniere Energy Inc (LNG) Sep-13 35 calls.

Since April 18, the S&P appreciated by 10% through the intra-day high on Wednesday. Yesterday, the short-term overbought market began to pull back because:

1)      FOMC Minutes which suggest quantitative easing will subside as soon as June if economic conditions continue to show improvement,

2)      Japan’s Nikkei dropped by 7.3% last night, and

3)      The HSBC Flash PMI reading for China dipped into contraction territory in May (49.6) for the first time in seven months.  Manufacturing in the eurozone also is in contraction which shows the disconnect between the real economy and the financial markets driven by central bank easy monetary policy.

Saks (SKS) has hired Goldman Sachs to explore strategic alternatives.  Options traded ~19x average daily volume, with 30,000 calls trading versus an average daily volume of 1,750. To highlight a few trades, 3k June 15 (.69d) calls were bought outright shortly after the open for $1.10, followed by an investor who sold July 14 (.23d) puts to buy the July 16/18 call spread, ~1k times. Later, ~7,800 June 16 (.43d) calls were sold to buy ~6,800 August 16 (.45d) calls, paying around $0.30 for the opening spread. There was also some protective put buying including a buyer of 1,700 November 13 (.22d) puts for $0.55. The call buyers may see the options as a limited-risk way to play an event rather than buying stock, which is up 32.6% on the week.

In Copart (CPRT) Wednesday, ~2,200 Jul 40 (.33d) calls were bought opening/outright for $1.30, creating ~55k shares to buy vs. 25k on the tape at the time. Earnings are estimated for May 28.

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