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Sentiment

Weakness in the financials combined with the options expiration triggered an uptick in market volatility Friday. Today is the January options expiration, which often sets record volume due the fact that many former Long-term Equity Anticipation Securities [LEAP] expire in the January. With about an hour left to trade, 8.3 million calls and 6.7 million puts traded so far.

Meanwhile, Bank of America (NYSE:BAC) is down 3.3 percent and the biggest loser in the Dow Jones Industrial Average amid relative weakness in the financials. The sector came under pressure early after JP Morgan (NYSE:JPM) reported better-than-expected fourth quarter earnings, but revenues fell short of analyst estimates.

The day's economic news was mixed. A report released one hour before the opening bell showed the Labor Department's Consumer Price Index [CPI] up 1 percent last month. Economists were looking for a .2 percent increase. Separate data released 15 minutes before the exchanges opened in New York showing industrial production up .6 percent, which was in-line with economist estimates. However, the stock market averages fell thirty minutes into trading after the University of Michigan said its index of consumer sentiment rose to 72.8 in January, from 72.5 last month and well below economist estimates of 74.00. It was mostly downhill from that point forward and the Dow Jones Industrial Average is down 110 points heading into the three-day weekend. The NASDAQ is off 29.

Bullish Flow

Palm (PALM) saw a morning spike, hitting a high of $14.14, and is now up 64 cents to $13.48 in active trading Friday. One savvy trader explains to me that PALM, which has high open interest, is getting squeezed today after the Wall Street Journal reported that Verizon Wireless (NYSE:VZ) plans to offer lower wireless pricing plans. They note that Qualcomm (NASDAQ:QCOM) is also benefitting from the idea that lower pricing plans from VZ will produce higher smart phone sales. In PALM options, trading is brisk — 30K calls and 21K puts traded so far. While some of the activity is in the front-month and likely due to the expiration, only 33 percent of today's volume is in January. A lot of activity is being seen in Feb and May puts and calls as well.

Bearish Flow

ProShares UltraShort QQQ (NYSEARCA:QID) added 40 cents to $18.91 after the Qs slipped 54 cents to $45.84. In the options, some investors are showing interest in Feb 21 calls. 9195 traded (95 percent Ask) vs. 4369 in open interest. July 20 calls seeing interest as well, with another 1950 traded. 19K calls and 1600 puts traded total. So, this is bullish trading on a bearish fund and therefore a bearish bet against the Qs.

Implied Volatility Movers

Open interest in Zion Bancorp (NASDAQ:ZION) has been increasing since last Thursday, to 124.1K from 70.2K, and the action continues today. 14K contracts traded (compared to 1860 calls). The top trade: 1335 Feb 16 puts this morning at $1 on ISE, which is an opening buyer, according to ISEE data. 5000 traded. Jan11 10 puts have traded 4655X. Meanwhile, implied volatility has been moving up along with the open interest, to 65, from about 50 last Thursday. Shares are down 33 cents to $16.38 Friday. No news on the Salt Lake City-based regional bank. Earnings due out Jan 25.

Unusual Volume Movers

Intel (NASDAQ:INTC) is seeing 3X average daily trading volume, with 435,000 contracts traded and call volume representing about 69 percent of today's activity.

JP Morgan (JPM) is seeing 2X average trading volume, with 270,000 contracts traded and puts representing 51 percent of today's trading activity.

Pfizer (NYSE:PFE) is seeing 2X normal trading volume. 197,000 contracts traded, with call options representing about 84 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in Baidu (NASDAQ:BIDU), Petrobras (NYSE:PBR), and Morgan Stanley (NYSE:MS).

Source: Friday Options Recap