Friday's Options Recap

Sentiment

Stocks opened broadly lower following a round of mostly disappointing stock news Friday. GE (GE) is down 4 percent and weighing down the Dow Jones Industrial Average after the company reported quarterly earnings of 22 cents per share on $37.8 billion in revenues. Analysts were looking for 20 cents on $39.5 billion.

IBM (IBM) is the Dow's biggest loser, falling 4.7 percent after the computer maker reported better-than-expected earnings and revenues, but also made cautious comments about corporate technology spending. Bank of America (BAC) reported a 26-cent per share loss for the quarter, which was a nickel worse than expectations. Revenues also missed estimates and BAC is down 4.2 percent on the news.

The day's economic data didn't help much. A report on industrial production released 15 minutes before the bell showed an uptick of .7 percent in September, which was a lot better than the .2 percent economists had predicted. However, separate data released a little later showed the University of Michigan sentiment index unexpectedly falling to 69.4 in October, which was below the 73.5 in late September and the 73.3 economists had expected.

In the end, the earnings and economic news failed to give investors sufficient reason to bid stocks higher and the major averages slumped in uninspired trade Friday. The Dow Jones Industrial Average is down 67 points heading into the final hour. The NASDAQ is down 15. Trading in the options market is active due to the expiration, with approximately 6.1 million puts and 7.8 million calls traded so far (a ratio of .79, compared to a 22-day average of .72).

Bullish Flow

Intercontinental Exchange (ICE) is bucking the bearish trend Friday. Shares are up $5.42 to $103.67 after Keefe Bruyette analysts upgraded the stock to Outperform from Market Perform and raised their price target to $120 from $103 (also raised CME to Outperform and raised and price target to $360 from $296 on expectations for strong derivatives biz in coming quarters.) In the options market, ICE volume is running 2X the average daily, with 19K calls and 5,984 puts traded. Most of the action is in the front-month, with short-term players trying to capitalize on the upward momentum in ICE shares and high deltas ahead of the expiration.

Biocryst (BCRX) and other "bird flu" plays (NVAX, SVA) are seeing relative strength after Bloomberg reports that production of H1N1 vaccines for coming weeks has been delayed. Options activity is picking up as well. BCRX is up 28 cents to $9.75. 8,480 BCRX calls and 1,200 puts traded so far

Bearish Flow

Big Prints in Moody's (MCO) after a strategist collected 22 cents on the Oct 25 - Nov 22.5 put spread, 13000X. Shares are down 37 cents to $23.59 and this likely a roll out one month and down in strike prices, with the investor looking to extend a bearish view on the credit rating agency for a few additional weeks

Implied Volatility Movers

Human Genome Sciences (HGSI) implied volatility is up sharply amid active trading Friday. Shares are up 3.2 percent to $20.03. 65,000 calls and 21,000 puts traded so far. Meanwhile, implied volatility is up to 161, from about 123 late yesterday.

Implied volatility is also higher in Weatherford (WFT), Alliance Data Systems (ADS), and Vivus (VVUS). Implied volatility is lower in Harley Davidson (HOG), Google (GOOG), and BofA (BAC).

Comments

[David White:]

HOG just ran up after a good sized miss. The implied volatility is likely down due to the topping out process. It should be aobut ready to head downward again. After the miss, it is now trading at 53 times 2009 estimated earnings (with only one quarter left to report). If you take into account HOG has missed for 5 consecutive quarters, then the FY2009 PE may well be in the 60's or higher. Does a company that is supposed to lose money next quarter deserve to trade at a 50+ FY2009 PE? Unemployment is still rising. The credit card charge off rates are going up even faster. HOG's auto loan problems have to increase along with these other rates. HOG is likely to have worsening problems next year, not improving results. Moody's has predicted the charge of rate peak to be in the middle of 2010. When bike's are repo'd in this environment, they have much lower value than normal. The losses for repo's are higher. With more defaulting loans and higher losses on those defaults, does anyone believe that HOG will grow earnings next year?

Oct 16 09:01 PM

[Mayascribe:]

Frederic: Why draw into your article those interested in H1N1 plays NVAX and SAV and then not write about them? I don't get it. Am I missing something here?

Oct 17 09:04 AM

[fran grady:]

I agree interested in NVAX still think it is a good model for vaccine production...needs better press.

Oct 17 09:22 AM