STOCKS NEWS US-Lowe's option plays suggest bullish view

Stocks on the move Real-time Equity news U.S. stock market report 1539 ET 04Nov2009 Lowe's recent option plays suggest bullish view ------------------------------------------------------------------------------ Shares of No. 2 U.S. home improvement chain Lowe's Cos Inc rose 14 cents to $19.59 near the close. Several option plays suggest a bullish view ahead of its earnings expected on Nov. 16, said independent options trader Steve Smith. In one trade, it appeared that one investor believes the shares will hold their ground in the next few weeks and sold 14,000 November puts at the $18 strike for 20 cents. This premium sale follows Tuesday's more bullish and less risky action, which saw aggressive call buying after UBS initiated a buy rating on the stock. In all, about 15,000 puts and 7,623 calls changed hands on combined volume that was double the average daily turnover, according to Trade Alert. Reuters Messaging: [e-mail] 1511 ET 04Nov2009 Cisco sentiment leans on call side ahead of earns ------------------------------------------------------------------------------ Option traders exchanged about 191,000 contracts in Cisco Systems Inc ahead of its quarterly results after the bell. Its shares rose 1.75 percent to $23.31 in late trading. Overall volume was triple the norm dominated by roughly 128,000 calls traded, according to Trade Alert. Many of those calls were bought aggressively. "Thus far, we show better than 54 percent of the calls bought on the offer versus just 45 percent of puts," said optionMonster co-founder Jon Najarian. The November $23 and $24 calls are the biggest beneficiaries of the bullish sentiment, with each trading over 30,000 contracts. The Nov $23 call strike exceeded open interest by nearly 11,000 contracts, also a bullish sign into the bell, he said. Implied volatiliy was higher in the front-month options and stood at 37 percent vs. 33 percent for December options. "This is not unusual, as we usually see what traders call a positive "Skew" to the pricing of options in the front month for EPS," he said. One trade included a 7,500 Dec $22 put/Jan $26 call risk reversal at 22 cents in a position tied to shares, said WhatsTrading.com option strategist Frederic Ruffy. Reuters Messaging: [e-mail]. 1433 EST 04Nov2009-Fed sees rates near zero for extended period ------------------------------------------------------------------------------ The U.S. Federal Reserve on Wednesday expressed growing confidence that an economic recovery was building, even though it stuck to its commitment to keep borrowing costs near zero for "an extended period." As expected, the Fed kept its benchmark federal funds rate unchanged in a range of zero to 0.25 percent, and said the economy had "continued to pick up" since its last policy-setting meeting in September. For details, see Reuters Messaging: [e-mail] 1341 ET 04Nov2009 Credit Suisse: Sell April/May straddles in large-cap tech names ------------------------------------------------------------------------------ Large cap tech volatility got bid up across the curve last week. While the bid for front month options (gamma) made sense, the back-end of the term structure was already trading very rich to realized volatility, wrote Credit Suisse derivatives strategist Svein Palsson in a note on Tuesday. These 6-12 month options have a much larger exposure to vega (change in implied volatility) than gamma (realized volatility), so they are not really a play on near-term volatility. For example, Cisco's six-month implied volatility currently trades at 34 volatility points versus 24.7 3-month realized volatility. This is very expensive to carry, particularly entering the historically quiet post Thanksgiving period. The same applies to 6-12 month volatility on Apple, Dell, Intel, Hewlett-Packard and Qualcomm. Thus, selling April/May straddles looks great on large-cap tech stocks as a yield enhancement on a long stock, Palsson said. Reuters Messaging: [e-mail] 1322 ET 04Nov2009 Goldman Sachs suggests Macy's call options ------------------------------------------------------------------------------ Buy Macy's Inc November calls ahead of upcoming monthly retail sales on Thursday and Nov. 11 earnings, wrote Goldman Sachs derivative strategists in a note. They expect October same-store sales results and earnings to be positive catalysts due to cost-cutting efforts and revenue upside driven by cooler weather and pent-up apparel demand. Macy's option prices appear low vs. department store peers. The strategists estimate Macy's shares move on average plus/minus 3 percent on same-store sales reported in November over the past 10 years, however, the stock has moved on average more than 6 percent on retail sales in the last 12 months. With shares at $17.77, Goldman recommends investors purchase Macy's $19 calls for 55 cents. They estimate that investors closing out this trade following retail sales and earnings would only need a 5 percent move to break-even assuming volatility declines by its 8-quarter median of 8 percent. Reuters Messaging: [e-mail] 1300 ET 04Nov2009 Option bulls load up on Heinz calls ------------------------------------------------------------------------------ Some option players expect H.J. Heinz Co, which makes its namesake ketchup, Ore-Ida potatoes and Smart Ones frozen foods, to move higher. Its shares rose 1.65 percent to $40.63. Heavy buying was detected in the Nov $41 calls, which earlier traded 7,259 times against contracts outstanding of 1,693, said optionMonster analyst David Russell in comments on the Web site. Institutional-sized paper paid premiuims of 35- to 50-cents apiece. The stock is up 4.26 percent in the past month, outpacing the S&P 500's 3 percent gain over the same period. "Money is streaming into Heinz today after it found support at the old resistance level of $40, providing evidence its uptrend remains intact," he said. The stock needs to rise about 3 percent by expiration for the calls to break-even. Others bought the Dec $42 call strike for 50 to 60 cents apiece, although volume was below open interest at 1,404 lots, he added. According to Trade Alert, volume was above the norm, with 18,000 calls traded vs. 1,556 puts. Reuters Messaging: [e-mail] Keywords: MARKETS STOCKSNEWS COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.