Friday's Options Recap

Sentiment

Stocks are broadly higher late Friday, with better-than-expected employment data along with bouncing banks and commodities helping to lift the major averages for big gains on the day and the week. Stock index futures were higher before the start of trading in New York after a report on monthly payrolls showed the economy losing 539,000 jobs last month, which was not as bad as the 600,000 loss economists had predicted.

Stock index futures were already holding gains before the jobs numbers hit the newswires. The move higher started late Thursday when the government released details of bank industry stress tests, which concluded that 10 banks need to raise $75 billion. A number of banks rallied in after hours late Thursday, as the call for capital cushions were not as substantial as some market watchers had feared.

Another move higher in crude oil is helping some of the energy-related names. Crude oil gained $1.94 to $58.65 a barrel. Gold overcame early weakness and is up 20 cents to $915.70.

Trading in the options market remains active. Approximately 9.1 million calls and 7.2 million puts changed hands so far (about 3pm ET).

Bullish Flow

Citi (C) is up 8.4 percent and the best gainer in the Dow Jones Industrial Average midday Friday. The Citi June 5 call is the day's most actively traded options contract, with more than 103K contracts traded. (Citi May 4, May 5, and June 4 puts round out the top four most actively traded contracts Friday.) Shares rallied and investors flocked to Citi call options after government stress test results indicated the bank needs $5.5 billion in capital, which it will obtain by expanding its previously disclosed public exchange offers.

WR Grace (GRA) is up $2.90 and options volume is running 16X the usual after a Montana court cleared three of the chemical company's executives in an asbestos trial. The stock spiked on the news an hour ago. 12K puts and 9330 calls traded.

Bearish Flow

Dryships (DRYS) is down $2.37 to $7.67 after getting hit by multiple broker downgrades Friday. Oppenheimer downgraded to Perform from Outperform after DRYS announced plans to sell up to $475 mln of stock from time to time. Jeffries downgraded the stock to Hold from Buy and there is talk that Cantor also lowered DRYS to Sell (not confirmed). In the options market, volume is running 2X the average daily, with May 9 and 10 calls leading the flow. DRYS calls have seen heavy trading since last Friday when the co reported better than expected earnings and called a bottom for the dry bulk shippers. Now some players are likely closing losing positions ahead of next week's expiration. May 7.5 and 9 puts are also actively traded.

Deere (DE) is up $1.38 to $45.18 and options volume is running twice the average daily. 35K puts and 4875 calls traded so far. A lot of the put volume appears to be the result of one spread trade on the ISE, where an investor bought about 10K Sep 35 puts and sold 20K Sep 25 puts. If so, they paid $1.25 for this 1X2 put ratio spread and are positioned for substantial move lower in DE between now and mid-September. Max payoff is at $25 per share, or 44.7 percent below current levels.

Implied Volatility Movers

Fifth Third (FITB) rallied 50 percent after stress test results suggested that the bank needs $1.1 billion in common equity capital, but not an increase in overall capital. Shares surged and implied volatility back down to 120, from about 138 the day before.

Implied volatility is also lower in Fuel Systems Solutions (FSYS), BofA (BAC), Select Sector Financials (XLF), Meanwhile, implied volatility is higher in Citi (C), Onyx Pharmaceuticals (ONXX), and WR Grace (GRA).

Comments

[twitee:]

It is possible that the recent rally in S&P could be sign of crashing dollar, beside the FED ponsy scheme!

If yes, then buy GOLD, Housing, and anything Tangible, even equities.

May 08 05:01 PM