Friday Options Recap

by: Frederic Ruffy


Stocks are holding modest gains in late day trading on options expiration Friday. The table was set for a bounce at the open after the Dow Jones Industrial Average lost 134 points Thursday and tech heavyweights Oracle (NASDAQ:ORCL) and Research In Motion (RIMM) posted earnings that beat analyst forecasts.

However, a rally never gathered any momentum and a 2.3 percent loss in Boeing (NYSE:BA) is weighing on the Dow Jones Industrial Average. Boeing slipped in early trading after Rynonair backed out of plans to buy 200 planes. PALM is down 14 percent after reporting a wider-than-expected quarterly loss.

Consequently, with no economic data to guide the action, trading is mixed. With 45 minutes left to trade, the Dow Jones Industrial Average is flat and the tech heavy NASDAQ up 25. The CBOE Volatility Index (.VIX) slipped .50 to 22.01. Trading in the options market is active due to the expiration, with approximately 6.7 million puts and 7.4 million calls traded so far (a ratio of .91, compared to a 22-day average of .74.)

Bullish Flow

Chesapeake (NYSE:CHK) is up $1.15 to $26.15 after CNBC's Jim Cramer made positive comments on the latest issue of Mad Money. Shares gapped higher and options activity is now 2X the average daily. One player bought 7000 Jan 25 puts at 71 cents against a position in CHK shares (on a 33 delta.) More than 10.4K now traded vs. 27K in open interest. Some investors might be buying-to-close short puts as the stock launches higher Friday.

Titanium Metals (TIE) is up 14 cents to $11.40 and recent options action includes two sweeps of 5000 (2500X2) Jan 12.5 calls ask-side for 25 cents. 6289 now traded (90 percent ask-side). Implied vols lifted 5 percent to 49.3. So, this looks like call buyers in the metals company. Shares hit a low of $11.13 have been battling back to $11.39, +.13 on the day. There was a noticeable spike in share volume at the time of the sweeps as well. No headlines on TIE today.

Bearish Flow

Ryland (NYSE:RYL) is off 3 cents to $18.84 and it appears that an investor sold Jan 20 puts at $1.55 (to close) to open a new position in the April 16 - 20 put spread at $1.90, 20000X on PHLX. This is possibly an investor looking to hedge a position in the homebuilder an extra few months.

Implied Volatility Movers

Ariad Pharmaceuticals (NASDAQ:ARIA) is up a penny to $2.14 and the Jan10 2.5 - Jan 3 call spread trades almost 10000X (9890 Jan 2.5s @ 20 cents and 9985 Jan12 3 calls at $1.05), in what appears to be a roll of short calls from January 2010 to January 2012. This call writer is possibly trading to take advantage of elevated premiums. Implied volatility in the stock is up towards 152 percent, from about 147 late yesterday.

Unusual Volume Movers

Research In Motion (RIMM) is seeing 3X average daily trading volume, with 496,000 contracts traded and call volume representing 66 percent of today's activity.

Oracle (ORCL) is seeing 5X average trading volume, with 179,000 contracts traded and calls representing 67 percent of today's trading activity.

Potash (NYSE:POT) is seeing 2X normal trading volume. 173,000 contracts have traded, with call options representing about 62 percent of the flow.

Unusual volume (two times or more than normal average volume) is also being seen in Palm (PALM), Wellpoint (WLP), and UAL (UAUA).