Friday's Options Recap

Sentiment

Stocks are trading mixed, as the "quadruple witch" options expiration failed to stir up any real volatility Friday. The lack of market volatility probably stems from a lack of significant news. The economic calendar is light and remains empty until housing data Tuesday morning.

On the earnings front, Research In Motion (RIMM) was in focus after the company reported better-than-expected first quarter profits thanks to strong Blackberry sales. However, shares are trading down $3.80 to $72.75 after the company's guidance for the second quarter fell short of some expectations.

Some of the energy-related names are also weak after crude oil dipped $1.71 to $69.66 a barrel. Gold is little changed at $935 an ounce. Bonds ended on a high note, with the benchmark ten-year Treasury up 13/32nd late and now yields 3.78 percent. The buck slipped back towards 96 on the yen. The euro is up to 1.3955 on the dollar.

The Dow Jones Industrial Average traded in a narrow 120 point range and is off 25 points heading into the final hour. The tech-heavy NASDAQ is outperforming, up 16 points. Trading in the options market is active due to the options expiration, with 6 million puts and 7 million calls trade so far, a ratio of .87 (compared to a 22-day average of .74).

Bullish Flow

20.8 million calls traded across the seven US options exchanges Thursday, which set a new record. Total volume, which reached almost 29 million contracts, represents the third busiest day for options activity–surpassed only by the all-time record of more than 30 million on September 18, 2008 and 28.7 million on March 19, 2008. Clearly, the "quadruple witch" expiration tends to boost volume. In addition, trading was heavy in a number of exchange-traded funds Thursday due to the fact they were going ex-dividend.

Yet, although the volume numbers were distorted due to dividends and the expiration, the record call volume reflects the ongoing growth of the options industry in recent years–a trend that is surely likely to continue. Greater numbers of investors are recognizing the value and importance of including options as part of a sound investment plan.

Bearish Flow

Another huge block of US Natural Gas (UNG) puts traded Friday. On June 8, with shares of the fund around $14.12, an investor paid $2.45 per contract for 130,000 October 14 puts. Today, with natural gas settling down 6 cents to $4.03, UNG is down 29 cents to $15.10 and an investor paid $1.35 for 80,000. 100K now traded. An exchange-floor contact tells us the position was tied to shares at $15.42, probably a block of 2.56 million that traded at about the same time. If so, it is not necessarily a bearish trade, as it will make profits if the fund makes a sudden move higher or lower.

Implied Volatility Movers

The CBOE Volatility Index (VIX) slumped Friday. VIX fell 1.67 to 28.26 and made a run back towards a multi-month closing low of 28.11 set last Thursday. The volatility index is under pressure following several consecutive days of mixed trading, which has resulted in falling levels of actual volatility. The 20-day historical, or actual volatility of the S&P 500, has fallen to 21 percent. Since VIX measures the expected volatility priced into S&P 500, it makes sense that it is falling as well.

Implied volatility is also lower in Citi (C), Research in Motion (RIMM), and Cigna (CI). Meanwhile, implied volatility is lower in Teekay Tankers (TNK), A Power Generation (APWR), and Healthnet (HNT).

Comments

[JamesApple:]

Rim stocks have a long and downward fall.

Jun 19 04:07 PM