Friday Options Recap

Sentiment

Stocks are trading modestly higher in a light volume trading session Friday. Economic data came into focus early after a report released before the bell showed the nation's Trade Balance widening to $36.5 billion in September, from -$30.8 billion the month before and more than the $31.8 billion deficit economists had expected. Separate numbers showed import prices jumping .7 percent in October, which was a bit less than the .8 percent economists had expected. Export prices, excluding ag, rose .3 percent.

Stock index futures showed little reaction to the data and the major averages opened the session with modest gains, before slipping on consumer sentiment numbers. About 30 minutes into the trading session, the University of Michigan reported that its index of consumer attitudes fell to 66 in November, down from 70.6 the month before and significantly worse than economist estimates of 71.

Yet, a sell-off never materialized and, instead, Disney (DIS) led the Dow to higher ground by midday. DIS is up 4.5 percent and the best gainer in the industrial average after reporting earnings that beat Street estimates. 20 other Dow stocks are higher, 9 are lower, and in the industrials are up 50 points heading into the final hour. The CBOE Volatility Index (.VIX) is down .56 to 23.68 and options trading volume is running about 80 percent the recent average daily. 4.6 million puts and 5.4 million calls have changed hands so far (a ratio of .85, compared to a 22-day average of .82).

Bullish Flow

Disney (DIS) gapped higher and is leading the Dow Jones Industrial Average with a 4.1 percent gain Friday after the media giant reported a quarterly profit of 46 cents per share, which beat Street estimates by a nickel. In the options market, trading is brisk, with 30K calls and 14K puts changed hands — or about 3X the average daily. The top trade is a lot of 5155 Jan10 calls at the $30 strike mid-market for $1.45, which might be a closing seller taking money off the table following today's news. 8300 now traded vs. 39.7K in open interest. Nov 29 puts, Nov 29 calls and Nov 30 calls are among the most actives as well. Meanwhile, implied volatility (average) is back down to 28.3 (-7.5) and not far from a 52-week low of 27.4 set about a month ago.

Assured Guaranty (AGO) rose $3.84 to $21.94 in early action after Moody's downgraded the company's credit rating, but maintained AGO in a double-A rating category. Some investors might have been fearing worse, as shares are up and options players appear to be looking for additional upside in Nov calls. 2846 Nov 22.5s traded (74 percent hitting ask-side) early. Another 1700 Nov 25 calls changed hands (78 percent hitting ask-side). Implied volatility (average) is up to 71.6, from about 62.1 late yesterday.

Bearish Flow

The top options trades on a slow volume day Friday (options volume is only 72 percent the recent average daily) have been in the SPYders (SPY). The biggest trades hit about 20 minutes into the trading session when an investor apparently bot the Dec 100 - 105 put spread at 92 cents, 20000X on NYSE. A little later, the June 94 - 104 put spread traded at $3, 18500X, and the Dec 94 - 104 traded at $1.11 ,18500X. The strategist sold December to buy June and might have been rolling a bearish vertical spread out an extra six months.

Implied Volatility Movers

Bearish activity detected in Kinetic Concepts (KCI), with 6288 puts trading, or 19x the recent avg daily put volume. Shares are down $1.24 to $34.76 and implied volatility is rallying to 52 (+13) on news the "FDA reporting preliminary public health notification with serious complications associated with Negative Pressure Wound Therapy Systems." Some players are bracing for additional downside in Nov 30 and 35 puts.

Unusual Volume Movers

PALM is seeing 4X average daily trading volume, with 121,000 contracts traded and call volume representing 80 percent of today's activity.

Genzyme (GENZ) is seeing 9X average trading volume, with 73,000 contracts traded and call volume representing 51 percent of today's trading activity.

Lowe's (LOW) is seeing 3X normal trading volume. 51,000 contracts have traded, with calls representing 70 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Dow Chemical (DOW), Terra Industries (TRA), and Aflac (AFL).