Friday's Options Recap

Sentiment

Options-expiration Friday is winding down in uneventful fashion. Earnings were in focus early in the day after Dow components General Electric (GE) and Citi (C) both reported quarterly earnings above analyst estimates. Although shares of Citi have given back early gains and moved into the red, GE is one of 19 Dow stocks moving higher and the industrial average is up 40 points.

Meanwhile, the NASDAQ opened lower after Google (GOOG) posted earnings that topped estimates, but reported flat revenues and offered cautious words about the outlook for the next two quarters. However, as has been the pattern throughout most of the week, early weakness was met with buying interest and both Google and the NASDAQ are holding gains heading into the final 45 minutes of trading.

The day's economic calendar includes only one economic stat. The University of Michigan reports that its index of consumer sentiment index improved to 61.9 in April, up from 57.3 at the end of March. The major averages saw a modest lift in morning trading when the number was released, as economists had predicted a smaller increase, to 58.5.

In the options market, trading remains active, as today is the last day to trade April 2009 options contracts. Approximately 11 million calls and 7.9 million puts traded so far. With stocks rallying heading into the weekend, the CBOE Volatility Index (.VIX) is down 2 points to 33.79 and on pace to close at its lowest levels since mid-September.

Bullish Flow

MGIC Investments (MTG) is up 19 cents to $2.75 and options volume is running 8X the average daily levels. 3,670 calls and 600 puts traded so far. Investors are showing interest in May 2.5 and May 5 calls. ISEE sentiment data suggest that the majority (89 percent) of today's call activity in MTG is opening customer call buys. The bullish order flow comes ahead of earnings expected around April 23, but that date has not been confirmed.

Dryships (DRYS) is up $1.18 to $6.73 and 66,000 calls already traded today, or about 4.5X (453 percent) the expected for midday. April and May calls at the $6 and $7.5 strikes are seeing the bulk of the action, with buyers dominating the flow after the company reported the completion of an equity offering and, separately, Oppenheimer upgraded DRYS to OutPerform.

Bearish Flow

ProShares UltraShort Lehman Bond Fund (TBT) is up $1.29 to $46.54 Friday. Treasurys are losing some "flight-to-safety" bid as banks rebound for another day. The benchmark ten-year Treasury bond is down 20/32nd. TBT is an exchange-traded fund that moves (200%) the inverse the iShares Long Term Bond Fund (TLT). Therefore, it moves higher as bonds lose ground. Some players in the options market like the idea. 20,000 TBT calls have traded. About 8,500 traded on the ISE, where sentiment data indicate 92 percent opening customer call buys. TBT May 42 puts are the most actives. Today's volume includes a block 16K contracts on the bid for 35 cents. Looks like a put seller opening a new position.

Lender Processing Services (LPS) implied volatility surged this morning, as shares sank on talk the company was the subject of a formal investigation by the Department of Justice. The company recently issued a press release saying it is not aware, and has not been informed, of a formal DOJ investigation. LPS is down $9.62 to $23.56 and implied volatility surged to 123.5, from about 57 the day before.

Implied Volatility Movers

General Electric (GE) implied volatility is falling after the company reported better-than-expected earnings and the company's CEO said that GE does not need to raise any additional capital. Shares are up 10 cents, to $12.37, and implied volatility is down to two month lows of 63.5, down from about 78 the day before.

Implied volatility is also lower in Citi (C), Google (GOOG), and Yahoo (YHOO). Meanwhile, implied volatility is higher in Regions Financial (RF), Cytec (CYT), and MGM Mirage (MGM).

Comments

[rayman:]

What a disappointment.
Play money paper trade....worked........
GOOG
04/17/2009 O BTC .GOPDT - GOOG APR 400 Call 2 $3.10 $14.95 ($634.95)
04/14/2009 O STO .GOPDT - GOOG APR 400 Call 1 $5.40 $14.95 $525.03
04/13/2009 O STO .GOPDT - GOOG APR 400 Call 1 $3.90 $14.95 $375.03 265.11
04/17/2009 O STC .GOPFT - GOOG JUN 400 Call 2 $25.50 $14.95 $5,084.91
04/14/2009 O BTO .GOPFT - GOOG JUN 400 Call 1 $18.70 $14.95 ($1,884.95)
04/13/2009 O BTO .GOPFT - GOOG JUN 400 Call 1 $17.00 $14.95 ($1,714.95) 1,485.01
Total Realized Gain/Loss for GOOG $1,750.12

Apr 17 05:14 PM

[Rob Viglione:]

Rapidly declining VIX once again makes it a good portfolio insurance bet. People should consider protecting recent stock gains, either by divesting some positions or hedging what they continue to hold.

Long VIX is a great hedge on stock downside. Also note that VIX is trading below 200-day moving average ~ 43

Apr 18 04:02 PM

[Rob Viglione:]

I have to admit that I'm long TBT, as well. Been bearing on treasuries for some time, but thus far have not done well.

Apr 18 04:03 PM

[RiskReturnO...:]

TBT looks like its breaking out ... finally, flood of new treasuries and potential reduction of China purchases is driving higher yield ... I think TBT has more to run; however, I'm concerned with the April 29th FOMC meeting ... in case Bernanke announced more quantitatitve easing measure (beyond what market already knows) ... maybe good to long TBT until FOMC week, then reassess after the meeting.

Apr 18 08:48 PM