Friday's Options Recap

Sentiment

Steady trading in Europe and strength in key commodities markets set the tone for early gains in the US Friday morning. Before the opening bell on Wall Street, stock index futures moved higher along with markets in Europe. France's CAC 40 and Germany's DAX were each up 1.7 percent, and UK's FTSE rose 1.3 percent. Meanwhile, crude oil is now up 91 cents to $73.92 late in the day and hit 2009 highs Friday. Gold gained $12.90 to $954.60.

Stocks also found some support from improving existing home sales data. A report released 30 minutes into the trading session showed sales increasing to an annualized rate of 5.24 million in July, up from 4.89 million in June and better than the 5 million economists had expected.

Stocks rallied on the news and have been able to hold the gains late Friday. With 90 minutes left to trade, the Dow Jones Industrial Average is up 138 points. Trading is slowing a bit, but remains active due to the expiration. Approximately 4.5 million puts and 7.1 million calls traded so far (a ratio of .63, compared to a 22-day average of .81.)

Bullish Flow

Fannie Mae (FNM) implied volatility is moving higher, as the heavy trading continues in the mortgage finance names. Shares are up 11 cents to $1.21 and 31,000 calls traded, compared to 2,680 puts. Traders are focused on $1 and $2 calls with expiration months ranging from Sep to Mar10. After dipping from 190 on Aug 14 to 122 yesterday, the average implied vol in FNM options has rallied back to 168 today.

Freddie (FRE), meanwhile, is up 14 cents to $1.74 and 6,800 calls along with 2740 puts traded. Implied volatility is falling, to 162 from 190 yesterday, amid selling of Jan10 2.5, Sep 2, and Jan10 1 calls.

Bearish Flow

Medtronic (MDT) is up 46 cents to $38.09 and puts are active ahead of the medical device maker's earnings report, due out Tuesday before the bell. 12K traded, compared to 2,850 calls. The top trades include a put spread, where a strategist bought 3000 Sep 38 puts for an average of $1.175 per contract and sold 2X more (6000) Nov 32.5 puts for 65 cents. Both trades look opening. They collected 12.5 cents and might be looking for a hedge heading into the earnings, but not expecting a significant move lower and or are willing to buy the stock at $32.5 if it sits below that level in mid to late November.

Implied Volatility Movers

The CBOE Volatility Index (.VIX) fell and made a run back below 25. VIX is down 1.38 to 24.88 late in the day. Only one economic stat is due out tomorrow--existing home sales--and the earnings calendar is light. Consequently, VIX is falling now that a substantial amount of this week's "event risk" has passed.

Implied volatility is also lower in Freddie Mac (FRE), Ann Taylor (ANN), and Gap Stores (GPS). Meanwhile, implied volatility is higher in Fannie Mae (FNM), Repros Therapeutics (RPRX), and Sirius XM Radio (SIRI).

Comments

[jmsithy:]

why is this report keep repeating?

Aug 21 04:51 PM

[Fred Ruffy:]

Sorry, formatting mistake. It copied some of the bearish/IV info from Thursday's recap.

My apologies.

Have a nice weekend.

Aug 21 06:01 PM

[bruSe:]

Is there a free statistical resource for IMPLIED VOLATILITY rankings, i.e., high to low? thanks

Aug 22 09:11 AM