Friday's Options Recap

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 |  Includes: AFL, AGCO, BAC, BG, C, CF, DECK, DELL, DNDN, GE, IYT, MGM, MON, MOS, PCP, POT, XLP
by: Frederic Ruffy

Sentiment

Stocks opened broadly lower amid ongoing uncertainty about the economic outlook and the ongoing problems in the banking world. Citigroup (NYSE:C) shares are leading the Dow Jones Industrial Average to the downside. C is down 38 percent after investors sold shares on news the bank has agreed to a swap of preferred shares for common shares with the government and a group of private investors. The government would hold a 36 percent stake in Citi after the deal, which seemed to fan fears of nationalization. BofA (NYSE:BAC) is down 24.6 percent and heading to session lows on worries it might suffer a similar fate.

The economic data offered little help. Data released before the start of trading showed fourth quarter Gross Domestic Product falling 6.2 percent. Economists had predicted economic growth shrank 5.4 percent during that period.

Other data released a bit later were a little brighter. The Chicago Purchasing Manager's Index [PMI], a gauge of regional manufacturing activity, showed some improvement after increasing to 34.2 in February, up from 33 the month before. The University of Michigan Consumer Sentiment was also a bit better than expected. It increased to 56.3 in February, up from 56.2 the month before. Economists had predicted a decline to 56.

Some sectors of the market are holding up better than others (also see Bullish Flow). Research In Motion (RIMM), Dell Computer (NASDAQ:DELL), and Intel (NASDAQ:INTC) helped support modest gains in the NASDAQ in midday trading.

Overall, the tone remains cautious and investors are clearly reluctant to stick their necks out too far given that every rally attempt is met with added selling pressure. The Dow Jones Industrial Average is down 67 points on the day and about 250 for the week heading into the final 45 minutes of trading. The CBOE Volatility Index (.VIX) is bouncing back modestly from three days of losses. VIX is up .74 to 45.40. Approximately 5.8 million calls and 5.5 million puts have traded so far.

Bullish Flow

The Dow Jones Transport ETF (NYSEARCA:IYT), an exchange-traded fund that tracks the price action of the Dow Jones Transportation Average, hit a 52-week low of $44.08 after the Dow Jones Transports slid to their worst levels since July 2003 Friday morning. The ETF has since rebounded and is unchanged at $45.34. One options strategist appears to be looking for additional upside over the next few weeks and bought two blocks of 2500 (5000 total) March 50 calls for 50 and 55 cents in morning trading.

Mosaic (NYSE:MOS) Mar 45 calls are active, as ag stocks show relative strength Friday. MOS up $3.12 to 442.78 and running to session highs in afternoon trading Friday. 6,600 Mar 45 calls traded. Potash Corp. (NYSE:POT), Monsanto (NYSE:MON), Agco (NYSE:AGO), Bunge (NYSE:BG) and CF Industries (NYSE:CF) are also showing relative strength.

MGM Mirage (NYSE:MGM) is down 47 cents to $3.98 after disclosing in an 8-K filing that it has tapped $842 mln from a $4.5 bln credit pact. In the options market, 8,300 calls and 925 puts traded, including a lot of 6000 March 5 calls recently traded at the offer for 30 cents. Directional sentiment based on today's total order flow in MGM is 69 percent bullish despite the negative reaction in the share price.

Bearish Flow

Select Sector Consumer Staples ETF (NYSEARCA:XLP) puts are active after an investor sold the Mar 21/20 put spread 10000X for 50 cents. This likely closes a position opened on Feb 13 when 10000 Mar 21 puts were bought for 52.5 cents, while opening a similar position in the 20s to maintain downside exposure. XLP is down 9 cents to $20.4.

Dendreon (NASDAQ:DNDN) is down a nickel to $3.22 and directional sentiment is bearish. 5480 puts have traded, compared to 550 calls. Trades include 3600 May 2.5 puts near the offer for $1.49 per contract. 4,485 now traded. Implied volatility is at 3-month highs above 200, from about 190 the day before.

Implied Volatility Movers

General Electric (NYSE:GE) Mar 7.5 puts are moving up the list of most actives. 47.4K now traded. Recent trades include sweeps of 1684 and 3673 contracts at the offer for 57 and 56 cents. Shares down 53 cents to $8.57 after announcing a dividend cut. Implied volatility up to 105, from about 94 the day before.

Implied volatility is also higher in Aflac (NYSE:AFL), BofA (BAC), and Citi (C). Implied volatility is falling in Dell Computer (DELL), Titanium Metals (TIE), and Deckers Outdoor (NYSE:DECK).