Friday's Options Recap

Sentiment

Stocks battled back from early weakness and are trading decidedly mixed late Friday. The Dow Jones Industrial Average traded lower early following mixed profit reports from GE (GE), BofA (BAC), Google (GOOG), IBM (IBM), and Citi (C). While the headline EPS numbers were decidedly better than expectations, revenue numbers failed to impress and IBM was the only one moving higher in pre-market action.

However, an early sell-off was averted with help from better-than-expected housing numbers. According to the latest data, builders broke ground at an annualized rate of 582,000 homes in June, up from 562,000 in May and much better than the 530,000 economists had expected. Building permits, a better gauge of future activity, rose from 518,000 to 563,000. Economists were expecting 524,000.

In the end, however, investors found very few reasons to aggressively buy or sell shares and trading has been remarkably quiet despite the options expiration. The S&P 500 has traded in a narrow 7-point range and is down 1.5 points heading into the final hour of trading. The CBOE Volatility Index (.VIX) is making a run below 24 for the first time since September. Trading is active due to the expiration, with 8.1 million calls and 5.8 million puts traded midday (about 1.2X the normal volume).

Bullish Flow

Alcatel (ALU) calls are busy for a second day. Open interest in December 2.5 calls increased by more than 4,000 to 6,781 following active trading Thursday. Today, the December 2.5 and January (2010) 2.5 calls are actively traded, with almost 8,000 traded (combined). A little more than half traded on the ISE, where sentiment data point to 99 percent opening customer buyers. In other words, 4,200 ALU calls have been bought-to-open on the ISE today. The stock was upgraded to Buy at Merrill Wednesday. Earnings due out July 30, before market.

Bearish Flow

There was remarkably little bearish trading Friday. A few trades in the index market did stand out. While the CBOE Volatility Index (.VIX) fell below 24 and to fresh 9 month lows, the most actively traded index contract on the day was VIX September 50 calls. More than 35,000 traded, included two blocks of 10,000 bought for 60 cents, according to an exchange-floor contact. While the trade is bullish on the VIX, it is bearish on the overall market; as it would take a substantial market decline to push the VIX, the market's "fear gauge", beyond 50 by the September options expiration.

Implied Volatility Movers

CIT (CIT) implied volatility is easing, but remains very elevated, as investors assess bankruptcy risks. After failing to get support from the government, CIT has now turned to some financial institutions for help, according to press reports Friday. The stock is up 23 cents, or 58 percent, to 64 cents per share. Implied volatility is falling to 400, from an extreme of 450 late Thursday.

Implied volatility is also lower in BofA (BAC), Citi (C), and GE. Meanwhile, implied volatility is higher in Rigel Pharmaceuticals (RIGL), Wilmington Trust (WL), and Lorillard (LO).

Implied volatility is also higher in CIT, Broadcom (BRCM), and Wells Fargo (WFC). Meanwhile, implied volatility is easing in Citi (C), Novartis (NVS), and Biogen (BIIB).

Comments

[whidbey:]

Yes but the VIX is lower while the indexes are still positive and moving up, or at least not down. This is a setup for some bruising moves on Monday and maybe the whole week depending on announcements and Cit's fate. Like a little bomb?

Jul 18 09:19 PM