Friday's Options Recap

Sentiment

Trading is relatively quiet Friday. Major averages moved higher early following gains in overseas markets. The Nikkei gained more than 5 percent and Hong Kong's Hang Seng rallied 4.4 percent on hopes for fiscal stimulus in Japan and China. Stocks rose across Europe ahead of a G20 meeting of financial ministers and central bankers to be held in southern England over the weekend. With overseas markets showing strength, the major averages opened mostly higher when markets opened in the US.

From that point forward, and with no real news to guide the market action one way or the other, trading has been relatively uneventful. The Dow Jones Industrial Average traded in a narrow 136-point range and was up 50 points heading into the final 45 minutes of trading.

In the options market, the CBOE Volatility Index (.VIX) is up 1.10 to 42.28 after three days of losses and ahead of next week's event risk, which includes data on manufacturing and industrial production Tuesday and housing and inflation numbers Wednesday. Trading is slowing a bit ahead of the weekend. Approximately 6.9 million calls and 5.3 million puts have traded so far.

Bullish Flow

Tenaris (TS), a Luxembourg-based steel and iron company, is seeing relative strength and bullish order flow. Shares are up 44 cents to $18.53, even as steel stocks (X, AKS, STLD, MT) fall on Friday. In the options market, TS options volume is running at 2X the average daily levels. 4000 calls and only 74 puts traded on the day. Investors are showing interest in March 17.5 and 20 call options ahead of an investor meeting on Mar 19, the day before the March options come off the board.

Palm (PALM) is up 21 cents to $8.07 and options volume is running 2X the typical levels on renewed buyout chatter (according to theflyonthewall.com). Sentiment is bullish, with 21,000 calls and 17,000 puts traded. While Mar 7.5 puts are the most actives, it appears that the volume is dominated by sellers. 78 percent of the 9,570 contracts traded hit bid-side. August 7.5 puts are also active. The call volume is scattered across March and April with strike prices ranging from 7.5 to 12.5 and seems to include a significant amount of premium buying.

Bearish Flow

Data Domain (DDUP) is seeing a second day of bearish flow. Yesterday, with shares around $13, our scans picked up increasing activity in April 12.5 puts. Shares are down $1.60 to $11.40 today and 5,700 puts traded, compared to 640 calls. Activity is scattered across Mar, Apr, and Jun puts at the $10 and $12.5 strikes. Implied vols up to 89, from about 73 the day before.

American Express (AXP) is down 8.9 percent and the biggest loser in the Dow midday Friday amid broader weakness in the credit card names (V, MA, COF, DFS). Sentiment in the options market seems somewhat bullish, however, after 15K AXP calls and 7,300 puts traded. Looks like buyers are showing interest in AXP March 10 and April 15 calls.

Implied Volatility Movers

Compass Materials (CMP) shares are down 13.5 percent to $53.36 and implied volatility rose on news German fertilizer company H+S has scrapped plans to acquire the company. Shares sank on the news and implied volatility is up to 79, from about 73 the day before.

Implied volatility is also higher in Discover (DFS), Capital One (COF), and Arena Pharmaceuticals (ARNA). Meanwhile, implied volatility is lower in General Motors (GM), Citi (C), and Smith & Wesson (SWHC).

Comments

[rayman:]

Looking at the last bids on CMP, looks like the APR 50's are being sold and APR 65's are being bought, so not sure if the deal is totally dead or just delayed imminently and just a headfake.
I've been starting JUN calls on the 65 line, but very slowly.....and not too many contracts @ once, just own a couple.

Mar 13 08:49 PM

[User 375949:]

Why is there an increased "implied volatility" in Arena Pharmaceuticals (ARNA)? I've read some positive feedback on the forthcoming BLOOM report due for the end of the month.

Mar 15 09:47 PM