Friday Options Recap

Sentiment

Stocks struggled at the open, but found a floor in morning trading and bounced a bit higher by midday. The Dow Jones Industrial Average made a run towards 8,250 early and is up 50 points to 8,342 heading into the final 90 minutes of trading.

The CBOE Volatility Index (.VIX) is up .04 to 31.39 and off session lows of 30.57 ahead of data on home prices and consumer confidence due out Tuesday morning. The volatility index is up 18.1 percent since hitting a low of 26.57 Wednesday morning, a sign that risk perceptions are moving higher and the options market is beginning to "price in" the possibility of increased volatility in the weeks ahead. (VIX tracks the expected volatility priced in current S&P 500 Index options.)

On Friday, trading is quiet, however. No economic data and a light earnings calendar offer no real reason to aggressively buy or sell ahead of the break. GM is seeing some volatility after Canadian Auto Worker President said bankruptcy is likely. GM is falling back to a $1.50. Some the retailers are helping support the major averages, with Sears (SHLD), Aeropostale (ARO), and Gap Stores (GPS) seeing post-earnings gains.

Volume is tapering off as traders hit the exits to enjoy a three-day Memorial Day weekend. Approximately 3 million puts and 3.8 million calls have traded so far.

Bullish Flow

Gamestop (GME) is up 45 cents to $22.83 and more than 8,600 June 24 calls traded, compared to open interest of 1,734. One player sold 3,983 for 75 cents on the CBOE, according to a floor contact. Indeed, it looks like sellers are dominating the action and pocketing premium ahead of the extended weekend. Some of the selling might be part of "buy-write" traders, where investors sold calls against GME shares.

iShares Silver Fund (SLV) is seeing a second day of bullish trading. After gaining 14 cents Thursday, silver is up another 21 cents to $14.66 today. The move higher in the white metal has sparked some interest in SLV calls, with 31K traded so far, compared to 1,900 puts. January 2010 calls at the 17 line are the most actives.

Bearish Flow

Synovus Financial (SNV) is down 9 cents to $3.22 and options volume is running 9X the normal levels, with 11K puts and 925 calls traded. June 2.5 puts are the most actives, and the 8,600+ contracts includes 7,608 at the offer for 30 cents on the PHLX. It was marked "tied"–possibly part of a short-term protective put strategy.

Software-maker SAP AG (SAP) is up 67 cents to $41.91 and options volume is running 4X the average daily. Most of the volume is on the put side of the options chain after a player bought 10K June 42.5 - 40 put spreads for $1.10.

Implied Volatility Movers

GM (GM) implied volatility is off the charts! Shares hit a high of $2.24 on news its GMAC finance unit had secured $7.5 bln in government funds. However, GM is now down 34 cents to $1.58 and came under pressure in late-morning trading after Canadian Auto Workers president said the automaker is very likely to file bankruptcy. Implied volatility rallying to 450 from 428 Thursday

Comments

[Boris Yaker:]

IOC...Interoil...

Has been pushed by FRIENDS of Management with relatively slow volume moved upward for the last 6 or 7 weeks to over 35 based on little more than a small amount of gas and just a smell of oil in New Guinea.

Earnings are someplace little and nothing and IOC's news is really nothing other than rumors.

IOC will tumble as soon as the FRIENDS head for the hills...and IOC tumbles back to about $10 where it belongs.

It may be hard to short... buying 'inthe money' or slightly out of the money calls amy be a better bet.

The truth will prevail before the 4th of July.

Boris...

May 23 08:57 AM