Friday's Options Recap

Sentiment

Stocks aren't doing a lot Friday. Trading was tentative early, as investors awaited the day's economic news. A report released shortly after the exchanges opened in New York showed the University of Michigan consumer sentiment index improving more than expected. The index rose to 65.1 in late April, up from 61.9 mid-month. Economists predicted the index would remain unchanged.

A separate report on manufacturing, from the Institute of Supply Management [ISM], also rose more than expected. The gauge of manufacturing activity moved up to 40.1 in April, from 36.3 in March, and better than the 38.4 economists had predicted. Factory orders fell more than forecasts, however. During the month of March orders fell .9 percent. Economists had predicted a decline of .6 percent.

Stocks held steady throughout the morning session as the strong economic data helped to offset worries about the swine flu outbreak, the Chrysler bankruptcy, and the banking industry "stress tests". Results of the test will be released on May 7, according to the latest press reports.

Consequently, the tug-of-war continues and mixed earnings news isn't helping the market find much direction either. Consequently, the choppy, mixed, and aimless trading seen throughout much of the week continues. The Dow Jones Industrial Average is down 25 points heading into the final 45 minutes of trading. The CBOE Volatility Index (.VIX) slid .91 to 35.59 and a lack of vertical movement in the major averages seems to have lulled some options traders into inaction. Approximately 5.3 million calls and 4.3 million puts traded so far.

Bullish Flow

Cameco (CCJ) is up $1.71 to $24.50 and calls are active on hopes uranium prices have bottomed. The company, which sells uranium through long-term contracts, reported quarterly earnings of 22 (Canadian) cents per share, which missed analyst estimates (2 analysts). However, CCJ raised its 09 forecast and, separately, a report from industry watch group Trade Tech said the uranium prices have risen to $45. Spot prices are down from 2007 high of $136 due to a supply glut, but Trade Tech says excess inventory has been removed. In the options, 11K CCJ calls traded, compared to 2,395 puts. May 25 and 27 calls lead the order flow. Looks like buyers taking new positions on hopes the rally can continue in the short-term. May options expire in two weeks.

Investors are tuning in to CBS (CBS) calls for a second day. May 7.5 calls were being bought yesterday after Soleil raised the stock to Buy and a $9 price target. Open interest increased by 5,391 contracts. CBS is up 26 cents to $7.30 and 5000 June 5 call traded. today. One of the top trades is 1,178 contracts for $2.20 around noon on the ISE, which is an opening customer buy order. No news on the stock today. Earnings are due out May 7.

Bearish Flow

Owens Illinois (OI) is up 58 cents to $24.97 and has rallied 35 percents since reporting earnings Wednesday. In the options market, recent trades seem to reflect a bearish view on the packaging container company after 7500 August 15 - 20 put spreads recently traded for $1.10 on the ISE. The activity is possibly a roll of puts from the 15 to the 20 strike (as volume exceeds open interest in the 15s, but not the 20s). Or, the trade is possibly a vertical put spread, where the strategist bought August 20 puts and sold August 15 puts.

Schlumberger (SLB) is up $1.39 to $50.38 and 25K calls traded, compared to 2870 puts. Most of the activity is in the front-month after a strategist sold 10000 May 45 - 55 call spreads for $4.18. The spread possibly closes out a position opened on March 11 for $1.75 when SLB was near $39.25 (Link to March 11 trade on web site).

Implied Volatility Movers

General Motors (GM) implied volatility is higher, the day after Chrysler announced bankruptcy plans and after Detroit's Big Three reported another round of bleak sales numbers. GM said auto sales fell 34 percent last month (Chrysler sales down 48 percent and Ford off about one-third). Shares of General Motors are slid 10 cents to $1.82 and implied volatility has rallied to 287, up from about 273 the day before.

Implied volatility is also higher in PNC (PNC), Hartford (HIG), and Plains Exploration (PXP). Meanwhile, implied volatility is lower in Chiquita Brands (CQB), Chevron (CVX), and MetLife (MET).