Friday Options Recap

Sentiment

Stocks are trading broadly lower despite a batch of better-than-expected earnings and economic news Friday. Microsoft (MSFT) is up 5.3 percent and helped lift both the Dow and the NAZ early after the software giant reported a quarterly profit of 40 cents per share on $12.92 billion in revenues. Analysts were expecting 32 cents on 12.32 billion.

Better than expected results from Amazon.com (AMZN), Ingersoll Rand (IR), Honeywell (HON), Fortune Brands (FO), and Whirlpool (WHR) also helped set a positive tone for morning trading.

Then, at 10:00 eastern time, the major averages moved to session highs after a report on existing home sales showed an increase to an annualized rate of 5.57 million units in September, which was up from 5.09 million in August and also better than the 5.35 million economists had predicted.

Yet, investors sold into the strength and it's been mostly downhill from that point forward. American Express (AXP) is down 5 percent and leading the Dow Jones Industrial Average to triple digit loss. Twenty-five Dow stocks are lower, five are higher, and the industrials are down 104 points heading into the final forty-five minutes of trading. The CBOE Volatility Index (.VIX) is up 1.12 to 21.81. Volume in the options market is slowing a bit ahead of the weekend, with 5.1 million puts and 5.9 million calls traded so far (a ratio of .86, compared to a 22-day average of .80).

Bullish Flow

Oracle (ORCL) is unchanged at $22.19 and 19.8K Nov 23 calls traded. Most of the action happened shortly after the open and consisted of several sweeps at the offer for 30 and 35 cents. Data is consistent with non-customer or firm buyers. Existing interest is 16.2K. So some of the volume might be closing. Implied volatility (average) is up to 25, from about 23.2 yesterday. No headlines on ORCL. Next earnings expected in mid December, after the Nov expiration.

Sohu.com (SOHU) saw a midday spike on heavy volume and was recently up $1 to $69.74. Call activity is picking up as well, with 2,915 contracts traded — 4X the normal activity and almost 3X the number of puts. Implied vols moving up to 48, from about 45 late yesterday; ahead of an Oct 26 (before market) earnings report.

Bearish Flow

MGIC Investment (MTG), a Milwaukee based mortgage insurance company, is falling to session lows amid increasing put activity and high implied volatility Friday. Shares are down 49 cents to $5.14 and options volume is running 5X the average daily. 11K puts and 2,000 calls traded. Looks like some investors are looking for further fallout and buying Jun 2.5, Jun 5 and Mar 5 puts. Looks like sellers of Mar 2.5 puts and possibly buyers in the Nov 5 calls. No headlines on MTG today. Co. reported earnings on Oct 16. S&P downgraded MTG's credit rating to B+, outlook revised to Negative, on Oct 19.

Implied Volatility Movers

Biogen Idec (BIIB) is down $2.61 to $44.62 and options are seeing action after the EU opened a review of risk and benefits of Tysabri. 29K calls and 13K puts traded on BIIB and implied volatility (average) is up to 33, from 26.3 yesterday.

Implied volatility is also higher in MGIC Investment (MTG), Elan (ELN), and Take Two Interactive (TTWO). Meanwhile, implied volatility is lower in Microsoft (MSFT), Amazon.com (AMZN), and Honeywell (HON).

Comments

[Options Tra...:]

Natural to have low volatility on all stocks that has just announced earnings. This is known as volatility crunch.

Oct 24 07:41 AM

[TonyNed:]

Watch Goldman. Technically everything is setting up to make an inflection point early next week. This move may begin as early as Monday.

Oct 25 07:09 PM

[TonyNed:]

Watch Goldman. Technically everything is setting up to make an inflection point early next week. This move may begin as early as Monday.

Oct 25 07:09 PM

[TonyNed:]

Sorry about that. Not spamming. Computer locked up.

Oct 25 07:10 PM