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Sentiment

The major averages fell Friday morning after worries about Dubai's credit problems sent global equity markets lower for a second day. Global equity markets sold off Thursday, while the US was closed for holiday, after Dubai World asked creditors asked for a six-month stay to repay $60 million in debt. Fear that problems in the credit markets might begin to resurface, and spread, triggered a notable uptick in risk aversion across the financial markets.

Equity markets in Asia suffered steep losses for a second day. Japan's Nikkei lost 3.2 percent and Hong Kong's Hang Seng tumbled 4.8 percent. While benchmarks in Europe moved modestly higher Friday after steep losses sustained Thursday, crude oil and gold prices plunged before the start of trading in New York.

However, while the Dow Jones Industrial Average lost more than 200 points at the open, volume was light and the decline was orderly. Gold and crude oil prices started climbing back mid-morning. Gold, which made a run back towards $1130, was recently down $9.90 to $1178.90. Crude oil, which lost almost $5 early, is off $2.10 to $75.86 a barrel.

The Dow Jones Industrial Average hit a low of 10,232 and was recently down 126 points to 10,338. With an hour left in the abbreviated session, options volume is surprisingly brisk, with approximately 3.00 million puts and 2.90 million calls traded so far (a ratio of 1.04 compared to a 22-day average of .80.)

Bullish Flow

After hitting a low of $11.30 per share, Activision Blizzard (NASDAQ:ATVI) has battled back and is unchanged at $11.56. In the options, trading is active, with 5110 calls and 110 puts traded so far. The call volume represents twice the expected for the first hour and is focused on Jan10 calls at the 10, 11, and 12.5 strikes. Dec 12 and Feb 23 calls are seeing action as well. Looks like buyers are dominating the action (sentiment is 48 percent neutral and 50 percent bullish) after Activision said today that its Call of Duty franchise has surpassed $3 billion worldwide.

Bearish Flow

SPYders (NYSEARCA:SPY) Dec 100 put option is the most actively traded contract in the first 15 minutes of market action Friday. 23K contracts traded. The iShares Small Cap Fund (NYSEARCA:IWM) Jan 55 put is the second most actives. Some investors are buying out of the money puts on the ETFs, as risk aversion picks up after Dubai World asked for a 6 month stay to repay $60 billion in debts.

Implied Volatility Movers

The CBOE Volatility Index (.VIX) jumped to almost 26 and was recently up 3.49 to 23.97 after risk aversion returned to the US equity markets Friday. VIX had fallen towards the 20 "psyche" level prior to the holiday and, despite several attempts, has failed to break through that level in 2009.

Unusual Volume Movers

UltraShort Basic Materials Fund (NYSEARCA:SMN) is seeing 12X average daily trading volume, with 29,000 contracts traded and call volume representing 99 percent of today's activity.

HSBC (HBC) is seeing 2X average trading volume, with 19,000 contracts traded and call volume representing 52 percent of today's trading activity.

United Rental (NYSE:URI) is seeing 56X normal trading volume. 16,000 contracts have traded, with puts representing 85 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in the A-Power (OTC:APWR), Delta (NYSE:DAL), and Sequenom (NASDAQ:SQNM).

Source: Friday Options Recap