Friday Options Recap

Sentiment

The day was off to a slow start following a round of uninspiring economic news. A report released before the start of trading in New York showed Gross Domestic Product contracting at a 5.7 percent annualized rate in the first quarter. Economists were looking for a 5.5 percent decline. A little later, a report on manufacturing activity in the Chicago area [PMI] showed a larger-than-expected decline to 34.2 in May, down from 42 in April and also below economist forecasts of 40.1.

Meanwhile, GM is weighing down the Dow Jones Industrial Average. Shares of the automaker are down more than 25 percent to only 83 cents heading into Monday's bankruptcy deadline.

However, strength in commodities is lending some support to metals and energy-related names. Crude oil closed at 6-month highs above $66 a barrel. Gold and silver are shining as well.

Bullish Flow

iShares Silver Fund (SLV) is up 50 cents to $15.43 after silver (July) gained an impressive 45 cents to $15.61. In the options market, one strategist appears to be looking for additional upside in silver and bought the Jan 2010 14 - 19 (3X4) ratio spread 75000X and also sold 100,000 SLV January 2010 13 puts. All traded electronically on the ISE and the total package seems to reflect the view that the exchange-traded fund will continue to shine during the second half of 2009 (but not significantly higher than $19 per share.)

Marathon Oil (MRO) is up 69 cents to $31.70 and options volume is running 3X the normal levels. 18K calls and 2,100 puts traded. Some of the activity is due to one trade, where an investor sold 4,900 July 32 calls for $1.575 and also bought 7,200 July 34 calls for $1.05. The trade possibly closes out a position in 32 calls while opening a similar long position in the 34s. No news on the stock today. Crude oil is up $1.06 to $66.14. MRO implied volatility is down o 41, from about 42.5 late yesterday.

Bearish Flow

CardioNet (BEAT) suffered a beat-down Friday. Shares are down $1.23 to $17.60 and hit a low of $16.55 earlier in the day on no apparent news. In the options market, put volume picked up for a second time this week. 6571 contracts traded, compared to 900 calls. June 17.5 puts are the most actives, with 5,565 traded. Some players might be exiting positions opened Wednesday, when shares were around $18.20 and more than 5,100 contracts traded on the day (90 percent ask-side)–discussed in WhatsTrading.com Premium. At the same time, it appears that some put buyers are taking positions in June and Nov 15s, sending implied volatility up another 2 points to 72, up from 56 Tuesday. Still Bearish.

GM (GM) is making a run back towards $1 per share, down 7 cents to $1.05, ahead of Monday's bankruptcy deadline. GM June 1 puts and June 2 calls are the day's most actively traded equity options contracts early, as players jockey for position ahead of the news. More than 11.3K traded in both contracts. Implied volatility edged down to 411 from 417 and remains extremely elevated. At current prices, investors are paying 56 cents for the June 1 put, which has a potential payoff of 44 cents if GM shares go to zero

Implied Volatility Movers

Implied volatility is easing in Dell Computer (DELL) after the company reported quarterly earnings of 24 cents per share, which beat Street estimates by a penny. Revenues fell short of expectations and DELL is down 7 cents to $11.40. Implied vols have fallen to 41.4, from about 48, now that event risk has passed.

Implied volatility is also lower in Tiffany's (TIF), Star Scientific (STSI), and Exelixis (EXEL). Meanwhile, implied volatility is higher in ViroPharma (VPHM), Elan (ELN), and Texas Instruments (TXN).

Comments

[Don Martin:]

General Motors is not weighing down the Dow. The Dow is dollar-weighted. When General Motors disappears, those who only watch the Dow will barely notice.

Procter Gamble, down 65 cents for the day, had a greater impact on the Dow than General Motors had today.

May 29 05:22 PM

[MILESCFA:]

BEAT down "on no apparent news."

No one except theflyonthewall.com seemed to pick up on a report by Concept Capital that the BCBS national assoc may recommend NOT covering BEAT's in home product. If I was paying for WhatsTrading.com, I'd like them to know this (note: I pay for Briefing.com and they did NOT pick up on this either).

messages.finance.yahoo...

May 30 09:50 AM