Friday's Options Recap

by: Frederic Ruffy


Stocks opened higher, but the early gains faded fast and the major averages have been under water throughout most of Friday's trading session. With very little tradable news to guide the early action, the Dow Jones Industrial Average extended this week's three-day 236-point advance heading into the University of Michigan's preliminary Consumer Sentiment Index for September.

The data, released 25 minutes into the trading session, didn't disappoint. According to the index, sentiment improved to 70.2 in early September, up from 65.7 at the end of August and better than the 67.5 economists had predicted. The Dow Jones Industrial Average hit session highs on the news.

Yet, in a sign that a lot of good economic news might have been discounted in recent weeks, the Dow Jones Industrial Average reversed direction and fell into the red shortly after the consumer confidence data hit the news wires. Since then, trading has been sluggish and, with less than an hour left to trade, the Dow is down 30 points. The CBOE Volatility Index (.VIX) edged up .57 to 24.12. Trading in the options market has been active, but is slowing ahead of the weekend. Approximately 5.9 million puts and 6.7 million calls traded so far (a ratio of .87, compared to a 22-day average of .82.)

Bullish Flow

Traders are jumping on Dryships (NASDAQ:DRYS) calls again Friday. Open interest in DRYS calls increased by 16K following a day of active trading Wednesday. With shares up 28 cents to $6.71, another 50K calls traded today (4X the expected and 5X the number of puts). Like Wednesday, Sep 7.5 calls are the most actives. More than 18K traded. Some might be closing, as open interest is 62.2K. Meanwhile, average implied volatility in DRYS is up to 78, from about 75.5 yesterday and 70 on Monday.

MGM (NYSE:MGM) is up 70 cents to $11.94 today and an impressive 54 percent since Sep 1. Today's gains come amid relative strength in the gaming stocks after Wedbush analysts raised their targets and estimates on LVS and Wynn. They maintain a Underperform on MGM due to depressed cash levels and high leverage, but did raise 2009 EBITDA estimates. Trading in MGM options remains brisk (5X avg daily), with heavy trading seen in Sep 12.5 and Oct 13 calls. Implied volatility (average) is moving as well, up to 89, from about 83 yesterday and 74 last Friday.

Bearish Flow

SunTrust (NYSE:STI) is up 45 cents to $21.86 and Sep 20 puts are seeing interest, with 15K traded, compared to open interest of 8,190. Most (68 percent) traded mid-market, but ISEE data, at 90 percent (9,621 contracts) hints at opening customer buyers. A number of other regional banks, including Regions Financial (NYSE:RF), Keybank (NYSE:KEY), and BB&T (NYSE:BBT), saw increasing interest in September puts as well -- which seems unusual because September options come off the board next week.

Implied Volatility Movers

Exterran Holdings (EXH), a Houston based oil and services company, is up $3.10 to $23.57 and has added an impressive 39 percent since Sep 4. Today's rally comes on no news and has been accompanied by increasing interest in EXH calls, with total volume running 8X the normal. 2780 calls and 600 puts traded so far. 1,132 Oct 22.5 calls traded, which looks opening, as open interest is zero contracts. Meanwhile, implied volatility is on the move. Average IV is up to 62, from about 50 late Thursday.

Implied volatility is also higher in OSI Pharmaceuticals (OSIP), Frontier Oil (NYSE:FTO), and Pioneer Natural Resources (NYSE:PXD). Meanwhile, implied volatility is lower in MetroPCS (PCS), National Semi (NSM), and Campbell Soup (NYSE:CPB).