Friday Options Recap

|
 |  Includes: AMD, BAC, CAT, COF, DIA, FNMA, MCD, MS, QQQ, SPY, UAUA, VXX
by: Frederic Ruffy

Sentiment

The major averages are under pressure for a third day, as investors sold stocks following mixed earnings news and ongoing uncertainty on the political and economic fronts. The Dow Jones Industrial Average lost 213 points Thursday on disappointing economic news and a new proposal by President Obama to limit the size and scope of America's leading financial institutions.

Then, Asia markets sold off overnight. Japan's Nikkei lost 2.6 percent and Hong Kong's Hang Seng slipped .7 percent. Benchmarks traded broadly lower across Europe as well. A 1.1 percent loss in France's CAC 40 paced the decline.

In the US, there was no economic data to guide the early trading and the earnings news was mixed. While GE and McDonald's (NYSE:MCD) moved up on better-than-expected results, Google (NASDAQ:GOOG) and Capital One (NYSE:COF) fell. American Express (NYSE:AXP) is seeing an 8.8 percent post earnings loss.

With less than an hour left to trade, 25 Dow stocks are lower and the Industrial Average is down another 155 points -- near session lows. The NASDAQ lost 46.5. Trading in the options market is clearly more defensive, with approximately 8.6 million puts and 7.7 million calls traded (a ratio of 1.13, compared to a 22-day average of .66.)

Bullish Flow

Rambus shares pop Friday afternoon, as many eyes were on S&P 500 futures breaking 1100. On more than a million shares, RMBS spiked from 23.75 to 25.75 before settling back near $25.25. The company won decision in trade fight with NVDA - Bloomberg. 26,000 calls and 13,000 puts traded so far.

UAL Corp. (UAUA) is up 48 cents to $13.61 and two blocks totaling 21K Jan11 $15 calls traded at $3 and $3.10. The action might close a position from December 18 when an investor sold 11,500 Jan11 $10 calls (probably closing) to buy 20,000 Jan11 $15 calls. If so, they're banking a profits on the 15s, as they were bought at $2.20 when the stock was just under $11 per share. The airliner is due to expect earnings on Jan 27.

Bearish Flow

BofA (NYSE:BAC) is down 16 cents to $15.31 Friday morning, as President Obama's proposal to limit the size and scope of big banks weighs on the stock for a second day. BAC fell 6.2 percent yesterday and was one of the worst performers in the Dow Jones Industrial Average. Like yesterday, Feb 13 puts are seeing early action. Yesterday saw a morning purchase of 46.3K contracts at 4 cents apiece (likely tied to shares) and more than 48K contracts of new open interest was created. The top equity options trade so far today: 19381 BAC Feb 13 puts at the asking price of 10 cents. It might be the same strategist adding to the position, which has already more than doubled in value so far.

Implied Volatility Movers

Fannie Mae (FNM) is off 6 cents to $1.01 and recent trades include sweeps of Mar 1 puts at the asking price of 15 cents per contract. 10,700 contracts traded (84 percent Ask) vs. 153K in open interest. While some of the activity might be closing, implied volatility has seen a noteworthy spike as well — up 25 percent to about 91.

Unusual Volume Movers

CBOE Volatility Index (.VIX) is seeing 2X average daily trading volume, with 354,000 contracts traded and call volume representing about 77 percent of today's activity.

Morgan Stanley (NYSE:MS) is seeing 2X average trading volume, with 106,000 contracts traded and puts representing 61 percent of today's trading activity.

Capital One (COF) is seeing 3X normal trading volume. 88,000 contracts traded, with put options representing about 55 percent of today's volume.

Unusual volume (two times or more than normal average volume) is also being seen in AMD, Caterpillar (NYSE:CAT), McDonald's (MCD).