Friday Options Recap

by: Frederic Ruffy


Stocks are holding modest gains in a day of rather uneventful market action Friday. The Dow Jones Industrial Average was off to a slow start early after a report on economic growth showed a 1 percent dip during the second quarter. While the number was a bit better-than-expected (1.5 percent), first quarter numbers were revised down and the data also showed ongoing sluggishness in consumer spending.

Yet, the market held steady early and then seemed to get a modest lift from better-than-expected manufacturing data. The Chicago Purchasing Manager's Index improved to 43.4 in July, up from 39.9 in June and better than the 43.4 economists had predicted.

Beyond that, and another mixed batch of earnings reports, investors don't have a lot to work with Friday. The Dow Jones Industrial Average has traded in a narrow 83-point range and is up 25 points heading into the final hour. The CBOE Volatility Index (.VIX) is down .24 to 25.16. Options activity is slowing heading into the weekend, with about 4 million puts and 5.2 million calls traded, a ratio of .77 (compared to a 22-day average of .84).

Bullish Flow

Ford Motor (NYSE:F) is up 54 cents to $7.93 and hit a new 52-week high today ahead of monthly auto sales results (Aug 3, 13:00) and as the House mulls a bill to expand the "cash for clunkers" program by $2 billion. The first $1 billion was depleted fast, as Americans dumped clunkers for new cars to capture $3500 to $4500 in government rebates. The program is expected to have boosted Detroit's Big 3 July auto and truck sales by a significant margin. Consequently, Ford is running higher and traders are fired up about Ford Motor calls, with 120K contracts traded, or 4X the number of puts, and Aug 8 calls leading the order flow. Implied vols up to 55.5, from about 52.5 the day before.

Bearish Flow

The dollar is down .93 to 94.63 against the yen and therefore the CurrencyShares Japanese Yen Trust (NYSEARCA:FXY), which moves inverse to the $/Yen, is up 93 cents to $105.10 per share. FXY options volume is running 6X the usual and most of the action is in the Sep 98 - 101 put spread, which has traded 2500X on the ISE. Looks like a buyer is paying 60 cents and ISEE data indicate that half are opening customer buyers. So, it appears to be a bearish short-term bet against the Japanese currency.

Implied Volatility Movers

Dryships (NASDAQ:DRYS) hit a high of $7.07 per share in morning trading, but has given up the gains and is down 11 cents to $6.61. Investors sold shares after the company released earnings, which were good, but shares had risen 27 percent in the three weeks prior to the news. Meanwhile, implied volatility has eased to 72, from about 89 the day before, now that earnings "event risk" has passed.

Implied volatility is also lower in Yahoo (NASDAQ:YHOO), Chevron (NYSE:CVX), and Disney (NYSE:DIS). Meanwhile, implied volatility is higher in Poniard Pharmaceuticals (NASDAQ:PARD), KeyCorp (NYSE:KEY), and Excel Maritime (NYSE:EXM).