Friday Options Recap

Sentiment

Stocks slipped again Friday following another round of disappointing earnings and economic news. The day was off to a rough start after Research In Motion (RIMM) shares fell 12 percent after its latest revenue numbers fell short of Wall Street estimates. Meanwhile, early economic data showed a surprise 2.4 percent decline in August durable goods orders. Economists were expecting a 0.4 percent increase.

The major averages saw modest gains around 9:55 eastern time, however, when the latest University of Michigan Consumer Sentiment Index showed improvement to 93.5 in late September, up from an initial reading of 90.2 and better than the 90.5 economists had predicted. Five minutes later, sellers resurfaced when the latest new home sales report showed a decline to an annualized rate of 429,000 in August, which was an improvement from the 426,000 in July, but below economist forecasts of 440,000.

The Dow Jones Industrial Average fell into the red on the home sales numbers and has yet to recover. With two hours left to trade, the Dow is down 13 points and, at 9,694, about midway between today's 95-point range. The CBOE Volatility Index (.VIX) is up .41 to 25.36. Trading is slowing ahead of the weekend, with approximately 4.6 million puts and 5 million calls traded on the session (a ratio of .92, compared to a 22-day average of .79).

Bullish Flow

Some traders are digging for profits in the ProShares UltraShort Oil and Gas Fund (DUG) Friday morning. DUG is an exchange-traded fund designed to move 2X the inverse of the DJ US Oil and Gas Index, which is dominated by large cap energy names like Exxon (XOM), Chevron (CVX), and Schlumberger (SLB). Shares are down 25 cents to $14.49 after crude oil erased eraly losses and moved higher (+.88 to $66.77 a barrel). DUG options volume is running 2X the average daily on increasing interest in Nov 15 and 18 calls.

Pepsico (PEP) is up 33 cents to $58.87 and 2,684 Oct 62.5 calls traded, vs open interest of 439. While most hit mid-market, ISEE data (at 96 percent = 2,396 calls today) indicate that these calls were being bought-to-open. No headlines today. Earnings scheduled for Oct 8.

Bearish Flow

Visa (V) is down $2.07 to $71.46 and Mastercard (MA) is off $5.56 to $209.38 after Senator Dodd made comments about a reduction in fees charged to merchants for credit card transactions. Apparently, talk of changing the "interchange fees" has been heating up for weeks and that possibility is now weighing on V and MA. In Visa, options volume is running 3X the average daily. 34K puts and 16K calls traded, including a block of 6500 Oct 65 puts bought for 75 cents. Oct 67.5s are the most actives, with 9,551 traded and two thirds hitting ask-side

Implied Volatility Movers

LEAP Wireless (LEAP) continues to see heavy trading. Shares are up 64 cents to $20.26 and options volume is running 2X the average daily. 26K calls and 1,320 puts traded. A lot of the action is in the Jan10 30 and 40 calls, which might include some closing trades since open interest easily exceeds today's volume. Nevertheless, shares are up and call buyers have been active in the stock for the past two days, sending implied vols up 3.7 to 80.7 today and up from about 70 Wednesday.

Implied volatility is also higher in Visa (V), Mastercard (MA), and CIT (CIT). Meanwhile, implied volatility is lower in RIM (RIMM), AZZ, and KB Homes (KBH).

Comments

[BucketofOnions:]

There is a certain psychological profile needed of successful options traders and that includes the ability to listen to and follow the rules of their chosen trading system and methodology no matter how their emotions are firing up. They also need the ability to detach themselves from the money they are trading, just like a doctor's detachment to the cries of their patients. A strong trading mentality comes not by nature. It is something that can be trained. Great options traders takes care of the way they run their life in generally and focuses on stress reduction and proper rest in the way their daily routine are run. Conversely, there are also traders who have been through so much pain in the stock market that they are generally unable to control their emotions and trade in a disciplined manner anymore. Yes, sadly, there are people who should just stay away from options trading.
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Sep 26 01:30 PM